Abstract

The objective of this study is to examine alternative processes for consolidating fragmented land. In many former communist countries, farmland was allocated through administrative procedures in an effort to shift to private ownership. Individuals received a number of disjointed parcels of land in different location and of varying quality in the pursuit of equity. Land fragmentation has been identified as a source of inefficiency in production due to increased time requirement and an obstacle to efficient operations.

Our model makes the following assumptions. 1) Individuals initially hold land parcels dispersed in multiple locations. 2) There is cost associated with holding dispersed land. The cost increases with the distance between parcels. Under the parameters used in this study, there exist a range of market equilibrium prices that support efficient allocations. We investigate whether alternative land redistribution mechanisms (negotiation with monetary compensation, double auction mechanism, and combinatorial call market) yield efficient allocations.

Experimental results demonstrate that negotiation with monetary compensation produces higher efficiency than the other two mechanisms, when subjects are experienced and are not faced with exposure problems. Inexperienced subjects tend to focus on marginal trades, thus fail to realize the gain from switching to locations far from their initial endowments. Combinatorial call markets do not always yield high efficiency. Its iterative feature induces subjects to holdout, especially when the number of subjects is small. Double auction have difficulty in realizing efficient allocations when subjects have to switch to locations that are far from their initial allocations.

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