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The Problem with the Holdout Problem

Author

Listed:
  • López Edward J.

    (Western Carolina University, Cullowhee, NC, USA)

  • Clark J.R.

    (The University of Tennessee-Chattanooga, Chattanooga, TN, USA)

Abstract

Recent theoretical work has investigated the exact mechanism(s) by which the holdout problem creates inefficiency and thereby justifies eminent domain. In parallel, recent empirical work has demonstrated that state courts and legislatures either grant discretion to, or prohibit, local authorities from using eminent domain for economic development. This article extends Miceli’s (2011) strategic holdout model to incorporate political inefficiencies that may emerge when granting discretionary powers. Using eminent domain for non-efficiency-enhancing purposes substitutes for voluntary exchange, which is optimal, and attracts rent seeking by developers. Therefore, the efficiency justification for eminent domain is conditional. It depends on the relative magnitudes of the market and political sources of inefficiency. This analysis informs the efficiency consequences of court rulings, most notably Kelo v. City of New London, and the various changes in states’ laws that followed.

Suggested Citation

  • López Edward J. & Clark J.R., 2013. "The Problem with the Holdout Problem," Review of Law & Economics, De Gruyter, vol. 9(2), pages 151-167, September.
    • Handle: RePEc:bpj:rlecon:v:9:y:2013:i:1:p:151-167:n:8
    DOI: 10.1515/rle-2012-0031
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    References listed on IDEAS

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    1. Thomas J. Miceli & Kathleen Segerson, 2007. "A Bargaining Model of Holdouts and Takings," American Law and Economics Review, American Law and Economics Association, vol. 9(1), pages 160-174.
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    5. Lopez Edward J. & Jewell R. Todd & Campbell Noel D., 2009. "Pass a Law, Any Law, Fast! State Legislative Responses to the Kelo Backlash," Review of Law & Economics, De Gruyter, vol. 5(1), pages 101-135, April.
    6. Cohen, Lloyd, 1991. "Holdouts and Free Riders," The Journal of Legal Studies, University of Chicago Press, vol. 20(2), pages 351-362, June.
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    8. James M. Buchanan, 1962. "Politics, Policy, and the Pigovian Margins," Palgrave Macmillan Books, in: Chennat Gopalakrishnan (ed.), Classic Papers in Natural Resource Economics, chapter 10, pages 204-218, Palgrave Macmillan.
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    More about this item

    Keywords

    holdouts; eminent domain; takings; market failure; government failure;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • K11 - Law and Economics - - Basic Areas of Law - - - Property Law

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