Laboratory Experiments of Land Assembly Without Eminent Domain

Abstract

We 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. We 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 selfassessment treatments are markedly higher than those of prior experimental studies in which the buyer faces bargaining frictions, such as costly delay or capital constraints. 1 Authors listed alphabetically. The current research was supported by the Mercatus Center, a private donation by Douglas and Marion Lee, and the University of Texas at San Antonio Office of the Vice President for Research.