Invited Takings: Supermajority, Assembly Surplus, and Local Public Financing

Abstract

Fear of the abusive exercise of eminent domain power and of potentially high costs resulting from serious holdout could cause slowdown and even suspension of land assembly for urban redevelopment, which is particularly devastating for the developing world. Invited takings, as recently emerged in many cities in China, delivered successes in overcoming holdout without a heavy dose of eminent domain. Property owners are empowered to decide whether to sell their property to the government with a supermajority vote at two distinct stages in the project, while subjecting the dissenting minorities to eminent domain. Invited takings differ from private techniques for land assembly by implementing equal treatment and transparency within the relevant group of property owners. It also deviates from conventional wisdom of eminent domain by allocating a substantial portion of assembly surplus to property owners. Such a strategy was made possible and attractive with certain background institutions as a response to limited local government revenue, such as debt financing by local state-owned entities. Finally, it better aligns costs and benefits of land assembly, shedding light on institutional design for other developing countries. For the first time within and outside of China, this Essay provides a systematic description and analysis of invited takings, based upon information on 23 invited taking projects that occurred in eight provinces and two provincial-level cities in China over the past ten years.