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This paper experimentally investigates whether money illusion generates substantial nominal inertia. Building on the design of Fehr and Tyran (2001), we find no evidence that agents choose high nominal payoffs over high real payoffs. However, participants do select prices associated with high nominal payoffs within a set of maximum real payoffs as a heuristic to simplify their decision task. The cognitive challenge of this task explains the majority of the magnitude of nominal inertia; money illusion exerts only a second-order effect. The duration of nominal inertia depends primarily on participants' best response functions, not the prevalence of money illusion. (JEL C91, D21, D83, E31, E41, E52, L11)

We report experimental results examining the properties of a bidding mechanism, the ''Compensation Election,'' which is designed to implement a simple binary choice between two options. We may think of the group decision problem as a choice between a new rule and the status quo. The rule and the status quo are each common outcomes that apply across all individuals, but the value or cost that they induce on each individual differs according to each individual's circumstances: some gain, some lose, and others are unaffected by a change to the new from the old. Rather than casting votes, each subject submits a bid reflecting his willingness to pay to induce the group to select one option and the amount he wishes to be paid if the alternative option is selected. The Compensation Election chooses the option that receives the highest sum of bids. We find that, although the Compensation Election allows subjects to strategically bid above their value (or even for the option they do not prefer), such behavior is not the norm. We also find that subjects' bids more truthfully reveal their values when there are more bidders in the election.experimental economics ͉ public goods ͉ auctions ͉ voting

A substantial literature identifies seller holdout as a serious obstacle to land assembly, implying that eminent domain is an appropriate policy response. We conduct a series of laboratory experiments to test this view. We find that when there is no competition and no eminent domain, land assembly suffers from costly delay and failed assembly; participants lose 18.1% of the available surplus. Much of the inefficiency is due to low offers from the buyers ("buyer holdout") rather than strategic holdout among sellers. When buyers can exercise eminent domain the participants lose 18.6% of the surplus. This loss comes from spending money to influence the fair market price and forcing sellers to sell even when the sellers value the property more than the buyer. Introducing weak competition in the form of a less valuable substitute parcel of land reduces delay by 35.7% and virtually eliminates assembly failure, so that only 11.5% of the surplus is lost.

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