Collective Goods and the Political Hold-Up Problem

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By extending the incomplete-contract model to the provision of local collective goods, this paper analyzes the political hold-up problem in urban land use. The model focuses on three-party contractual relationships and analyzes the effects of wage and rent capitalization, symmetric or asymmetric. The findings indicate that, in the face of uncertainty in collective-goods provision, it is efficient to integrate landowner and collective-goods provider, as demonstrated by the growth of the ground lease system and common-interest developments in recent decades. Rent capitalization further strengthens the result. Similarities and differences between urban institutions and the firm are also discussed.