I probably am not understanding well enough -- maybe you covered this and I missed it?
1. If peeling the land off from the improvements means I have to publicly auction, then only be able to sell the improvements to the new land buyer, wouldn't it be better to sell them together? That way I can sell to whomever I want, without public auct…
I probably am not understanding well enough -- maybe you covered this and I missed it?
1. If peeling the land off from the improvements means I have to publicly auction, then only be able to sell the improvements to the new land buyer, wouldn't it be better to sell them together? That way I can sell to whomever I want, without public auction.
2. If the only person I could sell the improvements to is the new land buyer, wouldn't the new land buyer have monopsony power such that they could get the improvements for almost free? (Or make me pay them, since I'm on the hook for removing the improvements if we can't reach an "agreement"?)
Good intuition, you're one step ahead of me! I'm going to look at this in more detail in the next post, but here's the gist:
Both the buyer and the seller have an incentive to keep things out of the land auction. For the buyer, this is because the dollars spent on a bid get taxed. The buyer responds to taxes by lowering their bid. Because the taxes lower their bid, the seller also wants to keep things out of the land auction, since they get less money than they otherwise would.
Moving to point #2, I should clarify that the original owner can sell the improvements to anyone, not just the auction winner. There's two key cases:
A. For items that are easy to take off the land (e.g. a potted plant or something) the original owner is better off selling the item on the market (or keeping it for themselves, or selling to the auction winnner at market price).
B. For items that are hard to take off the land (e.g. a house not designed to be moveable) the buyer does have a sort of monopsony power. Appendix 1 tries to model this and I find that the buyer can use that power to get the house for a little cheaper, but not for free!
I probably am not understanding well enough -- maybe you covered this and I missed it?
1. If peeling the land off from the improvements means I have to publicly auction, then only be able to sell the improvements to the new land buyer, wouldn't it be better to sell them together? That way I can sell to whomever I want, without public auction.
2. If the only person I could sell the improvements to is the new land buyer, wouldn't the new land buyer have monopsony power such that they could get the improvements for almost free? (Or make me pay them, since I'm on the hook for removing the improvements if we can't reach an "agreement"?)
Good intuition, you're one step ahead of me! I'm going to look at this in more detail in the next post, but here's the gist:
Both the buyer and the seller have an incentive to keep things out of the land auction. For the buyer, this is because the dollars spent on a bid get taxed. The buyer responds to taxes by lowering their bid. Because the taxes lower their bid, the seller also wants to keep things out of the land auction, since they get less money than they otherwise would.
Moving to point #2, I should clarify that the original owner can sell the improvements to anyone, not just the auction winner. There's two key cases:
A. For items that are easy to take off the land (e.g. a potted plant or something) the original owner is better off selling the item on the market (or keeping it for themselves, or selling to the auction winnner at market price).
B. For items that are hard to take off the land (e.g. a house not designed to be moveable) the buyer does have a sort of monopsony power. Appendix 1 tries to model this and I find that the buyer can use that power to get the house for a little cheaper, but not for free!