Land Assembly and the Holdout Problem Under Sequential Bargaining

Although the holdout problem is an established part of legal and economic lore, the exact source of the problem is not well understood. It is usually attributed to high transaction costs or bargaining power on the part of sellers. To isolate the essential features of the problem, we consider the simplest possible setting in which a buyer bargains sequentially with a series of sellers, each of whose land is necessary to realize the gain from a large-scale project. Using ordinary Nash bargaining and assuming complete information, we identify a minimum set of factors that give rise to a holdout problem. Copyright 2012, Oxford University Press.