We use a novel tax mechanism – ‘rejected offer reassessment’ (ROR) – in laboratory experiments to discourage seller holdout and facilitate land assembly. Under this mechanism, if a landowner rejects a developer’s offer, his taxable property value is reassessed to be equal to the rejected offer, increasing his taxes. We find that, relative to a control treatment, ROR discourages the magnitude of seller holdout (but not its frequency) and increases the rate of successful land assembly by almost 60%. It also increases the gains from trade by 22.1% relative to the control treatment, but the difference is not statistically significant.
DeSantis, M., McCarter, M. W., & Winn, A. M. (2018). Land assembly with taxes, not takings. Applied Economics Letters, 26(7), 604-607. doi: 10.1080/13504851.2018.1488047
Taylor & Francis
This is an Accepted Manuscript of an article published in Applied Economics Letters, volume 26, issue 7, in 2018, available online at DOI: 10.1080/13504851.2018.1488047. It may differ slightly from the final version of record.