Towards An Efficient Land Transfer Policy

The last two decades have seen Governments across the world getting drawn into controversies regarding land acquisition. The controversies are more frequent and acute in emerging economies. In most Emerging economies and particularly in India, the extent of debate in the policy space regarding land acquisition for industrial usage is immense in the last few years. With an aim to achieve higher growth targets, increasingly efforts towards industrialization leads to higher amount of displacement and restatement of agricultural landowners. This has led to ever increasing unrest in the society leading to huge inefficiency both in terms of locked up values and loss of human lives and livelihoods. In this paper, we propose a mechanism that addresses the issue of compensation during land acquisition. We argue that compensation based on the market value will usually not work because land is not a liquid asset and hence there is a lack of price discovery. Moreover, the price at which it is transacted in rural parts of India are often very low owing to distressed sale by the owner. Further, what indeed queers the pitch for a ‘market determined price’ is the fact that, agricultural land is often seen as private values than common values. In other words, the compensation which a plot owner demands are entirely ‘private value ‘which may not be objectively quantifiable. Our mechanism is akin to the Dutch Auction where the buyer starts with an opening bid and gradually landowners drop out of the auction. If the buyer needs k plots, the price at which the k+1th landowner dropped out leaving behind exactly owners of k plots, is paid to all the remaining land owners. However, if with the opening offer by the buyer, less than equal to k plot owners stay in the auction, the land transfer is called off. We show that our mechanism is efficient, truth revealing as well as coordination proof. Our mechanism also helps in solving the holdup problem. Finally, the mechanism also forces the buyer to reveal his private value for the plots thereby lowering the chance of him acquiring the land under eminent domain and then putting it to alternative use.