Kurtis Swope

Contracts, Behavior, and the Land-Assembly Problem:

An Experimental Study

John Cadigan 
Gettysburg College

Pamela Schmitt 
U. S. Naval Academy

Kurtis Swope 
U. S. Naval Academy

Ryan Wielgus
U.S. Naval Academy

Abstract

Land assembly can mitigate or reverse the negative environmental impacts of land fragmentation on urban areas, agriculture, and wildlife. However, the land assembler faces several obstacles including transactions costs and the strategic bargaining behavior of landowners. Through a laboratory land-assembly game with one buyer and two sellers, we identify several behavioral factors that compound the land assembler’s problem. We find that sellers tend to bargain more aggressively when bargaining is sequential compared to simultaneous. We also find evidence that non-contingent contracts increase bargaining delay and the likelihood of failed agreements. Furthermore, both buyers and sellers act more aggressively when there are multiple bargaining periods compared to a single bargaining period, leading to significant bargaining delay. We also find that when a seller has an earnings advantage in the laboratory, it is the first seller to bargain in non-contingent contract treatments. This result contradicts conventional wisdom and a common result from the land-assembly literature that it is advantageous to be the last seller to bargain, a so-called “holdout”. The majority of sellers indicated a preference for being the first seller to bargain in all of our sequential bargaining treatments.

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