Abstract
Large-scale developments often require developers to aggregate multiple parcels of land to proceed with construction; this process is known as land assembly. Frequently, developers fail to assemble land due to a key landowner, or holdout, who seeks to extract monopoly rents. While, the holdout problem has been studied extensively in the literature, an additional and equally important source of friction involves positive post-development externalities. These externalities manifest when a developer successfully aggregates land, but only affect the price of unsold, neighboring properties. Using a series of laboratory experiments, we show that post-development externalities reduce aggregation rates relative to a baseline with no externality, when buyers cannot capitalize the externality into their offers. Externalities also reduce the expected surplus for developers and increase bargaining times. When the transaction surplus is sufficient to cover the externality, landowners capitalize roughly 65% of the externality and aggregation rates improve to baseline levels.
Published Version
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
