Abel Winn

Abstract The authors use laboratory experiments to test two self-assessment tax mechanisms for facilitating land assembly. One mechanism is incentive compatible with a complex tax function, while the other uses a flat tax rate to mitigate implementation concerns. Sellers publicly declare a price for their land. Overstating its true value is penalized by using the declared price to assess a property tax; understating its value is penalized by allowing developers to buy the property at the declared price. The authors find that both mechanisms increase the rate of land assembly and gains from trade relative to a control in which sellers’ price declarations have no effect on their taxes. However, these effects are statistically insignificant or transitory. The assembly rates in our self-assessment treatments are markedly higher than those of prior experimental studies in which the buyer faces bargaining frictions, such as costly delay or capital constraints.

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.

There is a growing body of research in the social sciences on auction fever, an irrational behavior where individuals bid more for an item at auction than it is worth to them. While research in behavioral economics, organizational behavior, and consumer behavior examine different antecedents and mechanisms of auction fever, an understudied area is the impact of financial stakes on the tendency to catch auction fever. The few empirical auction studies that include financial stakes leave a confusion gap to be filled. Navigating the limitations in these previous studies and drawing on political economy's rational irrationality theory, we predict that auction fever will be less likely to occur as the financial stakes of the auction increases. We test this general prediction by replication and triangulating two field studies with an experiment in the behavioral laboratory. We find that people are less likely to catch auction fever when bidding for Amazon.com gift cards, consumer products sold on eBay, and laboratory items as the financial stakes of those items increase. Theoretical and managerial implications about the burgeoning literature about auction fever and competitive decision making are discussed.

We study the practice of self-control in an organizational social dilemma when the stakes are large, using 47 years of vital census data from 18th century Sweden. From 1750 to 1800, eighty percent of Sweden lived in a simple-structure organization called a bytvång or village commons. The amount of resources a village family received was a function of their size. During this period, crop failures left the population facing starvation. Using autoregressive time-series modeling, we test whether the people of Sweden continued to take steps toward increasing the stress on the commons by marrying and birthing children or practiced self-control. We find evidence that the peasantry-with little education, archaic agricultural practices, strong barriers to abortion and infanticide, and pressures by the Church and State to procreate-were less likely to marry and birth children (in or outside of wedlock) when the quality of the previous year's harvest was poor compared to when it was bounteous. Post hoc analyses support the idea that the reason behind declining fertility after a famine was human decision rather than human physiology. Our findings are consistent with the idea that human population growth is not a social dilemma called a collective trap-which has been the assumption for 50 years. Rather, human population growth may be an individual dilemma-suggesting that members of simple-structured organizations can unilaterally exercise self-control and manage resources through self-organizing.

A substantial literature identifies seller holdout as a serious obstacle to land assembly, implying that eminent domain is an appropriate policy response. We conduct a series of laboratory experiments to test this view. We find that when there is no competition and no eminent domain, land assembly suffers from costly delay and failed assembly: participants lose 18.8% of the available surplus on average. Much of the inefficiency is due to low offers from the buyers ("buyer holdout") rather than strategic holdout among sellers. When buyers can exercise eminent domain the participants lose 19.4% of the surplus on average. This loss comes from spending money to influence the fair market price and forcing sellers to sell even when the sellers value the property more than the buyer. Introducing weak competition in the form of a less valuable substitute parcel of land reduces delay by 35.7% and virtually eliminates assembly failure, so that only 10.1% of the surplus is lost on average.

Prior studies have shown that traders quickly converge to the price-quantity equilibrium in markets for goods that are immediately consumed, but they produce speculative price bubbles in resalable asset markets. We present a stock-flow model of durable assets in which the existing stock of assets is subject to depreciation and producers may produce additional units of the asset. In our laboratory experiments inexperienced consumers who can resell their units disregard the consumption value of the assets and compete vigorously with producers, depressing prices and production. Consumers who have first participated in experiments without resale learn to heed their consumption values and, when they are given the option to resell, trade at equilibrium prices. Reproducibility is therefore the most natural and most effective treatment for suppression of bubbles in asset market experiments.

This paper experimentally investigates whether money illusion generates substantial nominal inertia. Building on the design of Fehr and Tyran (2001), we find no evidence that agents choose high nominal payoffs over high real payoffs. However, participants do select prices associated with high nominal payoffs within a set of maximum real payoffs as a heuristic to simplify their decision task. The cognitive challenge of this task explains the majority of the magnitude of nominal inertia; money illusion exerts only a second-order effect. The duration of nominal inertia depends primarily on participants' best response functions, not the prevalence of money illusion.

We report on the design and testing of three auction mechanisms to maximize revenue and efficiency in the sale of two vintages of nitrous oxide emission allowances by the Commonwealth of Virginia in 2004. The three mechanisms considered were a combinatorial sealed bid (CSB) auction, a sequential English clock (SEC) auction, and a combinatorial English clock (CEC) auction. We find the SEC and CEC mechanisms to be superior the CSB when demand is relatively elastic.