Tuesday, January 17, 2006

Political Economy of Just Compensation

Nicole Garnett has a paper on the political economy of just compensation regarding the power of eminent domain. Todd Zywicki comments:
"To my mind, I haven't really been persuaded by the 'Just Write Them A Check' approach to Eminent Domain, which basically says forget about the Public Use Clause and simply ensure Just Compensation. As a logical matter, if that approach is valid with respect to the Takings Clause, why not apply it to the remainder of the Constitution? If ex post compensation (a liability rule) is supposedly a perfect substitute for an ex ante injunction (a property rule), why not apply it across the board? The logic of the argument seems to imply that the government could simply search your home without cause, and then simply write you a check for the inconvenience caused by the intrusion. As Nicole's paper suggests, there are non-instrumental harms present with respect to constitutional rights, and they seem to me to apply in both contexts. I honestly don't see why I only get constitutional protection in the form of a property from a search of my home but not the tearing down of my home for the benefit of a private developer (as Justice Thomas observed in his dissent)."
I agree. Still, as I've suggested in posts before, I think it is likely that compensation has probably often been significantly below a value that was "just" from the perspective of economic analysis.

Also, Ben Barros notes a presentation by Vicki Been concerning what we don't know about the real-world application of eminent domain:
"Here's a list of the subjects Been suggested would be good candidates for empirical work:

The costs and benefits of actual uses of eminent domain.

What entity is doing the taking and who pays for the taking?

Is there a differences in eminent domain practices between states or within states? If so, what explains those differences?

What is being taken?

Do the takings involve private-public partnerships?

What compensation is being paid, and how (and why) does it vary?

Has the use of eminent domain become more or less frequent? If so, why? Are municipal attempts at promoting infill development having an impact on the rates?

Why is eminent domain being used rather than a market transaction? What does the bargaining process look like? Who settles and who doesn’t? What is the role of subjective value in the settlement process? What does holdout problem actually look like? Do tax issues factor in (e.g., when an exercise of eminent domain is more tax positive for the owner of property than a voluntary sale)?

Are economic development takings a good thing? Can economic development be effectively done in a patchwork, voluntary fashion, without eminent domain? What is the long term impact of redevelopment projects? If restrictions are put on economic development takings, will that lead to more redevelopment projects based on blight?"
I'm convinced that takings for economic development are, in general, not good for true economic development. Actually, most of what local governments do in the name of economic development are probably bad economic policies from the perspective of economic analysis. For economic analysis to support local government economic development policies, one would have to believe there were sources of market failure with respect to the location of economic activities. Further, one would have to believe the sources of market failure took the form of positive externalities. The reasons local government officials give sound on the surface like positive externalities, but in general I think they are not. Jobs and taxes are most often cited. Jobs are determined within markets, which means there is no external effect involved. Taxes are transfers. Whether government takes property in the name of economic development, or just chooses some other form of policy, the result tends not to move resources in the community to higher valued uses since there are likely no market failures. Of course, forcefully taking another person's property in the name of economic development seems to me to make government's actions that much more egregious.


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