Selling Detroit?

When an entity goes bankrupt, it is ordinarily the case that assets are sold so that the creditors can be satisfied . . . to some extent. With Detroit going bankrupt there are a lot of assets. There is a trial balloon that Detroit might sell land, land that the City has acquired through tax liens or will acquire by eminent domain. The thought is that developers will buy this land. Really?

The problem is that jurisdiction would have to be sold. Nobody is going to develop land in the City of Detroit. What Detroit must do is to sell the right to govern these territories. Who would buy? Nearby jurisdictions are the most likely buyers, but there could be totally new municipalities.

What is the most reasonable way to sell jurisdictions? Combinatorial auctions would be the best way. These auctions are used to sell FCC spectra. That is, suppose you want to buy the right to broadcast in a certain frequency band and in a specific region. In this case, a combinatorial auction provides a way to combine several regions and/or frequency bands.

What about other assets? Detroit has a zoo, museums, water treatment facilities, and so on. These facilities ought to be sold. It is doubtful that combinatorial auctions would be appropriate for these disconnected and greatly differentiated facilities.

On the other hand, the land to be sold should also be sold via combinatorial auctions. My own economic experiments suggest that this method will maximize the value. If you want to learn more about combinatorial auctions, take a look at the site of the person who invented them, Rex Schrader.