Land Aggregation Using Contingent and Guaranteed Payments

Abstract

This article explores the use of alternative payment mechanisms to overcome the holdout problem when multiple parcels of land must be acquired to complete a real‐estate development project. Purchase offers contingent upon successful land aggregation are compared to combination offers containing both guaranteed and contingent payments to determine which approach better mitigates holdout. The distribution of gains between developers and landowners is also examined. The results of a series of economic experiments suggest that contingent offers expedite land aggregation but developer payoffs are higher when combination offers are used. The results offer insight to real‐estate developers participating in land aggregation and inform government entities considering the necessity of public‐sector intervention in real‐estate markets to encourage desired development projects.