Institutional Imperfections and Buyer-Induced Holdout in Land Acquisition

Imperfect institutions, particularly in developing economies, encourage bureaucratic corruption and outside interference by political parties or civic-society organisations, thereby distorting property rights for land. We characterise conditions when an industrial buyer’s optimal design to acquire land strategically involves holdout as a response to these imperfections. We propose testable hypotheses suggesting that such form of holdout increases (i) with a reduction in corruption if the current imperfections are significant, (ii) with an increase in ease of political opposition, and (iii) during elections. We also study welfare implications and discuss the relevance of the framework and the results for advanced economies.