Tenant Favoritism and Right of First Refusals in Farmland Auctions: Competition and Price Effects

Abstract

Rights of first refusals (RFRs) granted to tenants in land privatization auctions enable them to purchase their leased land by accepting the highest bid. RFRs may deter bidders and incentivize non–right holders to adjust their bidding. We conjecture that tenant favoritism with RFRs reduces competition and thus sales prices at the expense of the public sellers. To test the conjectures, we compile a data set of land auctions by two privatization agencies in eastern Germany, one favoring tenants along with an RFR, between 2007 and 2018. Double robust matching results indicate RFR-related reductions in the number of bidders and prices. (JEL Q15, D44)