Land Acquisition: An Auction Based Solution Maitreesh Ghatak, London School of Economics Parikshit Ghosh, Delhi School of Economics
Fundamental Questions How to price the land being acquired? Who to take land from? How to identify and compensate livelihood losers (tenants, labourers, etc.)? What should be the government’s role?
Fundamental Questions How to price the land being acquired? Who to take land from? How to identify and compensate livelihood losers (tenants, labourers, etc.)? What should be the government’s role?
Asset Pricing: the Law Market price used as benchmark. Land Acquisition Act, 1894: compensation = market price LARR, 2011 (tabled Bill): compensation = market price X 4 (rural) or, market price X 2 (urban) + R&R package
Market Price as Compensation: Practical Problems Transactions few, records poor. Calculation is Collector’s discretion. Price underreported. Distress sales. Scope for manipulation: dummy trades.
Market Price as Compensation: Theoretical Problems Price/ Value D Quantity
Market Price as Compensation: Theoretical Problems Price/ S Value P* D Quantity
Market Price as Compensation: Theoretical Problems Price/ S Value Owner P* Not owner D Quantity
The Auction: Outline Coverage: project site (1,000 acres) + surrounding area (another 1,000 acres). Cheapest 1,000 acres out of the 2,000 acres to be bought. Those farmers within the project site who have not sold in the auction to be given land acquired outside the project site. Project cancelled if auction price exceeds the reserve price.
Stylized Map: Project Site
Stylized Map: Site + Periphery
Stylized Map: Auctioned Plots
Stylized Map: Land Swaps
Stylized Map: Land Swaps
Stylized Map: Land Swaps
Auction: Price Determination Bids Plots …. …. 1 2 3 1000 1001 2000
Auction: Price Determination Bids Plots …. …. 1 2 3 1000 1001 2000
Auction: Price Determination Bids Price Plots …. …. 1 2 3 1000 1001 2000
Project Accepted Bids Reserve Price Price Plots …. …. 1 2 3 1000 1001 2000
Project Cancelled Bids Price Reserve Price Plots …. …. 1 2 3 1000 1001 2000
Auction: Advantages Minimizes coercion: Farmers can keep arable land if they wish. Cash compensation not less than asking price. Incentive not to over bid. Project must prove its worth. Allocates remaining farmland efficiently. No room for complaint later.
Auction: Shortcomings Heterogeneous land quality. Relocation costs. Negative project externalities (water scarcity, pollution, crop damage). Collusion among bidders. Some additional ad hoc payments may be necessary.
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