Three Essays on Property: The Microeconomic Foundations of Locational Obsolescence; Holdouts and Cartel Formations in the Land Assembly Process; Compensation for Land Use Regulation: The Lucas Case
Trefzger, Joseph William
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https://hdl.handle.net/2142/72588
Description
Title
Three Essays on Property: The Microeconomic Foundations of Locational Obsolescence; Holdouts and Cartel Formations in the Land Assembly Process; Compensation for Land Use Regulation: The Lucas Case
Author(s)
Trefzger, Joseph William
Issue Date
1993
Doctoral Committee Chair(s)
Colwell, P.,
Department of Study
Finance
Discipline
Finance
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Economics, Finance
Abstract
Chapter I. The microeconomic foundations of locational obsolescence. Conventional wisdom holds that locational obsolescence is caused by externalities, yet this view implies that externalities fall primarily on building, rather than land, values. Evidence is provided herein that a more general cause is misallocated land. The analysis is based on a model of a market with two land uses. It is shown that even if no externalities are present, locational obsolescence can exist if land is misallocated. With an externality, there is no locational obsolescence at the market allocation, while at the optimal allocation only an externality can produce locational obsolescence. Externalities therefore are neither necessary nor sufficient conditions for locational obsolescence.
Chapter II. Holdouts and cartel formations in the land assembly process. Along the urban periphery, developers generally rebundle property rights by subdividing large parcels, while at interior locations they typically assemble large tracts from smaller ones. A problem that accompanies land assembly is that holdout sellers can render development unprofitable even if land would be moved to higher valued uses. One manner of dealing with holdouts is for land owners to sell jointly to developers at agreed prices, yet this cartel solution could violate antitrust laws. A model is developed under which holdout seller behavior is contrasted with that of a cartel. Conclusions are that a cartel can provide results consistent with efficient outcomes and that a cartel produces a lower price for a buyer at smaller levels of assembly.
Chapter III. Compensation for land use regulation--the Lucas case. Government's need to combine multiple parcels provides a rationale for regulating, as for acquiring land. Developers sometimes impose homogeneity on the use of their land through easements and deed restrictions, but they refrain from attempting private controls over land that they do not own because regulation (with government assistance) is less costly for them if there might be holdouts. An analysis that expands the model developed in the second chapter, motivated by the outcome of a recent Supreme Court case, suggests that compensating slightly above owners' reservation prices promotes efficiency at both the macro and micro levels.
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