The holdout problem and urban sprawl Experimental evidence

Conventional wisdom as well as economic theory suggests It is more costly to reassemble fragmented land due to transactions costs and strategic bargaining costs Both costs are expected to increase with the number of sellers Inefficient allocation of land resources may result including property entropy (Parisi 2002) urban sprawl (Miceli and Sirmans 2007) and deteriorating inner cities Given the difficulty of observing actual values attached by buyers and sellers to land little empirical evidence exists to sup port the conventional wisdom and theoretical work We use experimental methods to examine transactions costs and strategic bargaining costs in a land assembly market game with one buyer 1-4 sellers and complementary exchanges The buyer s final earnings vary inversely with the number of sellers cete ris paribus indicating an incentive to purchase consolidated land Delay costs reduce holdout but result in lower payoffs for both buyers and sellers Competition between sellers reduces holdout and the buyer s total purchase price Published by Elsevier Inc