Extortion

Timothy Sandefur:

"In Didden v. Port Chester, the government decided to redevelop an area of the city, and chose a developer who drew up development plans. One of the property owners, Bart Didden, owned a piece of property that he wanted to lease to CVS to build a pharmacy. The developer, on the other hand, wanted to use the land for a Walgreen's instead. So the developer told Didden that if he would pay the developer $800,000 and give him a percentage in the CVS, that he wouldn't condemn the property. Didden, of course, rejected this offensive offer, and the next day, the city condemned the land to give to the developer. (More details here.)

This outrageous conduct is the subject of a petition to the United States Supreme Court, which was filed recently. Today I filed an amicus brief on behalf of the Pacific Legal Foundation urging the Court to take the case.

What’s interesting is how this case parallels something called 'exactions,' which we see in a lot of cases involving building permits: government demands that a property owner give up some value to the government—a portion of the land, or sometimes outright cash—in exchange for a building permit. Now, this case didn't involve a building permit, but the issue is the same: in exchange for the right to use the property, you have to give up your property rights. That is what the Supreme Court has called 'an out and out plan of extortion.'"

Yeah, extortion sounds like the right word to me. But, these exactions have been a pretty common practice by local governments for quite some time.

There They Go Again

Another government official is saying eminent domain is a right:

If necessary, the city of Ocean City will exercise the right of eminent domain to condemn your property. . .

Of course, we are talking about the POWER of eminent domain. Government has the right to purchase land, just like you and I do. But, this city official isn't threatening to purchase a citizen's land. This city official is threatening to take the land because of the POWER of eminent domain. But, doesn't it sound so much nicer to use a right instead of a power?

Wal-Mart

Here's an interesting item:

"The Hercules City Council is scheduled to vote tomorrow on whether to begin eminent domain proceedings to try to forcibly take 17 acres owned by Wal-Mart.

The retailer wants to put a big-box store on the site.

But city officials have different plans for the property. They say construction of a giant Wal-Mart store near the bay does not fit with development plans for the community of 24-thousand people."

A city government thinks it's role is to take 17 acres from Wal-Mart because it thinks people in the community, people who do not own the property, should be able to have different plans for the development of Wal-Mart's property.

UPDATE 9-14-06: I noticed something written by Warren Meyer at Coyote Blog that suggests Wal-Mart is often on the other side of the use of eminent domain.

Sometimes I Have To Wonder

I just looked at: Timothy Riddiough, "The Economic Consequences of Regulatory Taking Risk on Land Value and Development Activity," J. Urban Econ 41, 56-77 (1997). The author develops a mathematical model of a "real options approach" to land valuation and land development decisions in order to consider the economic impact of regulatory takings with less than full compensation. Here is the author's finale:

". . . Our basic finding is that, as a result of takings threats by regulators, land value can decline significantly because development flexibility has been restricted. . ."

Sometimes I just have to wonder what we economists are up to with our time. The model developed in this paper seems just a fine model, but it seems to me this "basic finding" is pretty evident. I know, there surely is much complexity in land valuation to consider, but at the same time, isn't it pretty clear that the threat of government force directed at land use decisions on my parcel will diminish the value of that land to me and to others?

Eminent Domain: Sounds Like A Joke, But It's Not

METROWEST DAILY NEWS:

FRAMINGHAM -- Selectmen will ask the town's Economic Development and Industrial Corp. to study how to broker a deal with a local developer to take over part of the MBTA park-and-ride lot for a possible restaurant.

Michael Laurano, lawyer for Timothy Hanna, asked selectmen to consider an eminent domain land-taking from the Massachusetts Turnpike Authority of 1672 Worcester Road, with Hanna financing the acquisition costs.

Under the proposal, selectmen would then deed the property to Hanna for the purposes of creating a new business, which Laurano said would likely be a new restaurant.

"Mr. Hanna has the will and the resources to do this project," said Laurano during Monday's selectmen meeting.

The park-and-ride lot has 250 parking spaces, said Laurano, but most days finds only about 20 cars parked there. He said the Turnpike Authority has let its ownership stake in the land lie dormant for several years.

"The Rugg-Gates house is practically a blighted building," said Laurano, referring to the historic home that is on the land.

In 2001, Hanna, who owns Ken's Steak House, scored a victory in his long-standing battle with the Turnpike Authority when his suit challenging the legality of taking the same land from him was reinstated on appeal.

But the state Appeals Court in 2004 affirmed a Superior Court ruling, saying the Massachusetts Turnpike Authority was justified in taking the entrance to a proposed hotel and office park in 1994.

[D. Craig MacCormack, "Eminent Domain Mulled for Pike Land," MetroWest Daily News, Sunday, June 18, 2006]

I'm not sure I can believe this story. The story certainly helps confirm my thoughts that the power of eminent domain is something we really should take back from government. If I understand the story line here, I'm thinking someone is telling a joke: "You see, there was this guy in Framingham. He's the guy who owns Ken's Steakhouse, but his name isn't Ken. It's Timothy. Over 10 years ago now, government told Tim that it was going to take his property over on Worcester Road because it needed it for a Turnpike or a parking lot or something. Tim got kind of mad at the idea so he took government to court to try to keep his land from being taken. Of course, the court was a government court, and the court said Tim couldn't stop government from taking the land, that it was important for the Turnpike Authority to have his land for a parking lot or whatever the Turnpike Authority thought it was important to have the land for. So Tim's land got taken by government for the Turnpike Authority to own. Now after that, the Turnpike Authority built a parking lot, but almost no one ever uses it. And, there is an old "historic" building called the Rugg-Gates house that no one uses either, and that the Turnpike Authority doesn't even try to keep up. It just sits there now, on what used to be Tim's land. So, Tim carries this grudge about all of this over the years. And, now, over 10 years later Tim gets a bright idea. He goes down to city hall and asks the city to take the property by eminent domain from the Turnpike Authority, and then give it back to him (the rightful owner of course). After all, there is an old blighted building on the property, and almost no one ever parks in the lot. Tim promises that if the city government will take his property back from the Turnpike Authority that he will pay out of his own pocket the amount of money the city has to pay in just compensation for taking his land back. But there's more, Tim promises economic development because if the city takes his land back he will build a new restaurant on his old land, land that almost no one makes any use of right now. He's thinking he might call this new restaurant Tim's Steak House. . . . ."

I can't really think of what a good punch line would be for a joke like this. But, stories like this make eminent domain seem to be a joke, and the joke is on us. It just seems like stories like these shouldn't be a part of a just, fair, and efficient system of political economy.

Used To Make Former Mayor Happy?

The Bernardsville News:

"The ordinance states that if acquired, the parcel would be used for a pocket park. But two audience members Monday questioned whether there might be safety problems by creating a place for children to play adjacent to busy Mount Airy Road.

Councilman Mikael Salovaara said that while he favored giving the borough power to use eminent domain, he continued to have an “open mind” about how to use the parcel, if acquired.

Kress purchased the 22 Mount Airy Road parcel from former owners William Jr. and Emily Howlett on March 10 for $519,000. The Howletts, now in their 80s, and a tenant moved out last July after borough building officials ordered them out pending renovations. The two-family Victorian-style house on the property had become rundown over the years, and the town feared for the occupants’ safety. They had owned the property since 1953.

The borough advanced the eminent domain ordinance several weeks ago after hearing concerns from former Mayor Peter Palmer, who lives on Prospect Street, adjacent to Kress’ parcel. Palmer said he feared intensification of the use of the property based on Kress’ expressed desire to build townhouses there."

I think I'm reading this correctly. A former mayor of the city in question complains that his new neighbor wants to build townhouses, and the former major doesn't want townhouses on the parcel belonging to his neighbor. So, the city council votes to allow the use of eminent domain to take the parcel from the former mayor's neighbor. Is this a great country, or what?

[David Polakiewicz, 'B'ville OK's possible use of eminent domain law for Mount Airy tract," The Bernardsville News, 5/24/2006]

Wal-Mart & Predators

Scripps Howard News Service:

"No other city in America has considered standing up to the nation's largest retailer quite like the bedroom community of 24,000 on the Contra Costa County shore that is named for the Greek mythological hero and was once home to a major dynamite plant.

While other cities have rejected Wal-Mart store proposals, the Hercules City Council is to vote Tuesday on whether to begin eminent-domain proceedings to forcibly take 17.27 acres from the company, which wants to put a big-box store near an upscale new residential neighborhood next to San Pablo Bay.

Amazing, eh? Cities already have been allowed the power, through zoning regulations, to tell a property owner the various ways in which he or she may not use their property. But such power seems insufficient in this case. The city seems to be considering simply taking the property from the owner, apparently because they do not like the business the owner wants to develop on the property.

And why would the residents of the city think the city government should have such power? Here is one idea:

'I don't want to have anything ghetto around me and my family,' said Monique Howell, 25, who 18 months ago paid $652,000 for a two-story Craftsman"

Oh my. One of the most successful retail businesses of all time, and people want government to take 17 acres owned by this retail business because it would apparently be "something ghetto." By the way, why would we think others in the community should have the right or the power to simply take this property because of what they want done with the property?

Here is a rather rich irony:

"But opponents repeatedly have criticized the company's business practices, calling the company "predatory," and saying they would prefer trendy grocery stores like Whole Foods, Trader Joe's or Andronico's, and specialty shops."

As though, Wal-Mart's "neighbors" in this community are not being predators when they seek to use city government's power to take what is owned by another member of the community, eh?

[Patrick Hage, "Hercules (Calif.) may unchain eminent-domain wrath at Wal-Mart," San Francisco Chronicle, 22-May-06, via Scripps Howard News Service online.]

The Kelo Backlash So Far

Timothy Sandefur:

"This is done primarily by leaving open loopholes which allow government officials to seize “blighted” property. Of course, “blighted” property is property that doesn’t perform economically to a standard that bureaucrats would like. Consider the new West Virginia law, for example. It allows government to seize property that is in a “blighted area,” and it defines this term as

an area, other than a slum area, which by reason of the predominance of defective or inadequate street layout, faulty lot layout in relation to size, adequacy, accessibility or usefulness, insanitary [sic] or unsafe conditions, deterioration of site improvement, diversity of ownership, tax or special assessment delinquency exceeding the fair value of the land, defective or unusual conditions of title, improper subdivision or obsolete platting, or the existence of conditions which endanger life or property by fire and other causes, or any combination of such factors, substantially impairs or arrests the sound growth of the community, retards the provision of housing accommodations or constitutes an economic or social liability and is a menace to the public health, safety, morals, or welfare in its present condition and use.

Under such vague standards, West Virginia’s property owners have virtually no protection from Kelo-style condemnations."

You just can't trust those politicians.

[Hat tip: Property Prof Blog]

Politicians Rights

"Kansas City Mayor Kay Barnes told Missouri lawmakers Tuesday that her city couldn’t turn itself around without sometimes taking private property.

At a hearing on legislation that would change eminent domain law, Barnes said Kansas City had been circumspect in its use of the property condemnation process.

Still, she said, some economic development projects that benefit the city would not go forward without the use of eminent domain, a process that governments have long used to take private property for public use.

“We have to have the right of eminent domain” to use as a last resort, Barnes said."

Listening to politics and politicians is often disappointing and discouraging. A "right" is not something used as a last resort. Eminent domain is not a "right," and governments do not have "rights." Eminent domain is a power granted to government. Of course, accurately talking about eminent domain as a power makes it much easier for the average citizen to pay attention and to by worried, very worried. Therefore, a politician who wants to wield such a power might well prefer to hide the nature of the power by calling it a right.

[Tim Hoover, "Barnes defends eminent domain: legislators consider 'takings' law, Kansas City Star, Wed., Mar. 29, 2006]

Investment

"Businesses in a San Ramon redevelopment district are marked with a 'bull's-eye,' a new citizens' group contends -- not only because they are situated in a redevelopment area, but also because the city wants to re-establish eminent domain there.

A city plan to bring eminent domain back to part of north San Ramon has put a 'cloud' over the businesses and reduced their values, said Martinez attorney Scott Jenny, representing Citizens and Businesses of San Ramon Against Eminent Domain.

'Buyers are unwilling to invest in property where the city has placed the bull's-eye of eminent domain aimed straight at it,' Jenny wrote in a letter to the council. 'This cloud of condemnation will artificially decrease the value of the properties and businesses in the redevelopment area.

'Of course, if the property is eventually taken, the city's appraisers will use this decrease in the value of the properties and businesses against the property owners and businesses themselves, paying less for the property taken,' he wrote.

Jenny sent the letter as the City Council on Tuesday night considered amending the city's redevelopment plan to re-establish eminent domain.

The council unanimously approved a resolution that will enable it to formally adopt an ordinance re-establishing eminent domain."

I certainly believe the assertion that buyers are unwilling to invest in property when local government has approved the use of eminent domain "as a last resort" is likely to be true. It may well also be the case that local government may be able to take advantage of this through lower property valuations. I've noted on this blog before that government often seems to use the power of eminent domain as a threat in order to encourage property owners to sell cheaply rather than fight the taking.

I want to ask a bigger question here. If we accept the assertion that the threat of eminent domain reduces the incentive for buyers to invest in the short run, then aren't the same incentives present in the long run as well? With Court opinions such as Kelo, if people begin to think that private property can be taken for virtually any reason, not just for specific public uses, then aren't the mechanisms by which economic prosperity flourishes in our system of political economy significantly impaired?

[Scott Marshall, "Businesses, residents unite to fight eminent domain," Contra Costa Times Wed., Mar. 29, 2006]

More on the Golf Course Taking

Edward Herlihy has commentary with more information about the possible golf course taking. Here is his description of the reason for the taking:

"No, the mayor of North Hills wants to use the power of government to condemn Deepdale--whose members are a diverse group of people from all over the country and around the world--to make it an exclusive high-end golf course restricted to people who live in his small village and would be willing to pay thousands of dollars in yearly membership fees. The model is said to be the nearby Village Club of Sands Point, which is owned by that village. There you not only have to pay village taxes but membership dues to join. A full family membership at the Sands Point club costs $18,000 a year. If this is indeed the model for Deepdale, the club would become 'public' in name only but in truth would be every bit as exclusive as any private club."

It seems likely that my earlier assumption that the course was being taken to be turned into a municipal golf course was incorrect.

"The mayor even went on television twice recently to brag about his plan. He told WNBC reporter Greg Cergol that turning Deepdale into "a village golf course exclusively for the village residents" would be a nice "amenity" for them. According to the reporter, the mayor explained that "his goal" is "to turn Deepdale into a private club for his village's 5,000 residents." And he told Channel 12's Bill Mooney that his plan would "increase property values"--private property values--in North Hills.

This goes way beyond Kelo. The planned condemnation of Deepdale, if accomplished, would violate the Takings Clause of the Fifth Amendment to the Constitution, which prohibits the government from taking private property unless it is for a "public use," even when the property owner is justly compensated for the taking. Although Kelo gave local governments significant leeway in determining what a proper "public use" is, it did not abandon all limitations on what is allowable. The Supreme Court took care to emphasize that local governments must still act for a valid "public purpose" in taking property, and may not do so merely "to benefit a particular class of identifiable individuals." Yet that is exactly what North Hills seeks to do with Deepdale: It wants to condemn a private golf course so that its residents can use it as their own de facto private golf club and thereby increase their property values. No court has ever upheld such a taking, and no court could reasonably do so under Kelo."

Boy, I would like to think he is correct in his analysis of Court opinions. It seems to me that this specific taking should be considered unconstitutional, but I'm afraid it is not clear the Court will say that it is. After all, the local government will apparently become the property owner. In the Kelo case after the property was taken it would become owned by another private individual, not by government. If government owns the property, is it clear we can say it is not in "public use?"

Endowment Effect & Just Compensation

William Fischel ["The Offer/Ask Disparity and Just Compensation for Takings: A Constitutional Choice Perspective," International Review of Law and Economics 15:187-203, 1195] discusses a proposal by others that the endowment effect, or the offer/ask disparity, suggests that compensation for eminent domain takings should be in an amount that is greater than market value.

The endowment effect, or offer/ask disparity, has been observed in experimental economics. The idea is that a person requires a significantly larger value to compensate for giving up something in her possession than she would be willing to pay to gain the same thing. If this observed behavior is applied to the question of the appropriate value to compensate for a taking by the power of eminent domain, the idea would be that we should presume the market value would reflect the lower value of "offer" and not the higher value of "ask" that is required to get a person to give up something they already own.

I think there are two key points that Fischel argues on this issue. (1) He notes that ". . . a thorough account of forced transfers of property has to take account of both sides of the ledger." (p. 192) He suggests we don't want to look just at the person who is compensated because the money for compensation comes from taxpayers. Looking at "both sides of the ledger" suggests that overcompensation for the taking implies unjustified takings from the taxpayers. (2) He looks to history to suggest that in deciding on the constitutional wording of the power of eminent domain, the offer/ask disparity was recognized and considered and the constitutional choice was for just compensation to be defined as market value.

Taking up the second point first, I'm not persuaded by his suggestion and analysis. He does two things in this regard. First he looks at the Bill of Rights to the U.S. Constitution. Here are a few of his observations:

"The framers . . . .said little about why they implicitly accepted market value. . . " (194)

"My modest aim in this section is to point out that the framers and ratifiers were in an ideal position to see all sides of the taking issue. . . ." (194)

"But they were also in a position to realize that the burdens of overcompensation would be borne by themselves. . . ." (194)

"The federal just compensation clause was adopted by people who were in a position to consciously choose higher or lower compensation. But that is less persuasive than evidence that they actually considered other arrangements." (195)

I agree that his discussion of implicit acceptance and of ideal positions to choose between the offer/ask alternatives is simply not very persuasive. Here I also note that the Takings Clause uses the phrase "just compensation," and as such perhaps we should consider the normative grounds for determining justice when something owned by someone is taken from them by force. This refers to the first point noted above, and I take this issue up below.

The second approach he takes is to examine the debates about eminent domain with respect to state constitutions. He explains that there were state constitutional conventions that worried about excess compensation, and therefore that in state conventions people did weigh both sides of the ledger. I'm not persuaded with this because state constitutions, generally, do not require super majority votes. This is the author's point when he notes that state constitutions are more democratically determined.

I like to think that a document is not a constitution unless ratification of the document requires some form of a super majority vote. It is the requirement of a super majority vote that I suggest places those voting into a "constitutional setting." The requirement of a super majority vote to ratify a constitution means that it is much more likely that what becomes part of the document is truly in "the public interest," and much less likely that the constitution is framed in ways that are to the benefit of special interests (or factions in the language of James Madison). The debates in conventions with respect to state constitutions would not fall within a constitutional setting unless a super majority vote to approve was required. Thus, I am not persuaded by a discussion of the issue at hand from the perspective of state constitutional debates.

Now let's turn to his first point. It seems to me that noting in some experimental economics settings that there is an offer/ask disparity has little relevance to the question of "just compensation" required by our constitution. I seems that a sound way to define "just compensation" in the context of taking private property would be to debate the issue in a true constitutional setting. Imagine a situation in which a proposed position on compensation for government forcefully taking private property had to garner 3/4 of all votes to be approved. How likely is it that the approved definition would rely on the idea that there could be overcompensation because the taxpayers might have to pay a larger amount of money?

In some ways I suppose this suggestion would seem reasonable. After all, money is taken from taxpayers, which seems much like the property taking that is this cause of this discussion. On the other hand, we all clearly know who owns the property which gets taken. We know that by definition because we all consider it to be private property which is taken for public use (according the the Takings Clause). And we know who is taking the private property. It is the government which is acting, presumably, on behalf of the public and therefore on behalf of the taxpayers. It is the government, acting on behalf of the rest of the taxpayers and the rest of the community, which is taking something that belongs to the person who is forcibly having property removed from her possession. It seems to me the question of just comes to mind not because taxpayers may have to pay more taxes, but rather because it is the taxpayers who are being allowed to forcibly take property owned by another. Using force in this way seems by definition unjust, and therefore, I think justice does not require one to balance the ledger with respect to taxpayers. I think it unlikely that balancing the ledger would garner a super majority vote of support in a true constitutional setting.

Yet, there might be an analysis by which I would find much greater sympathy for the taxpayers when "just compensation" is required because government takes what is privately owned by others in the community. We might argue that both the individual from which the property is taken, as well as all the taxpayers who have money taken from them for taxes to pay compensation, are treated unjustly. Here we might choose to say that the government's taking of private property is really not on behalf of the taxpayers and on behalf of the rest of the community. We might choose to say that the politicians and government officials are taking the property of others, and they are then paying the constitutionally required compensation by taking still more property (via income or sales taxes perhaps) from others in the community. After all, the politicians and government officials are making choices and they are not being required to pay just compensation out of their own pockets. In this case, I would like to look at both sides of the ledger that Fischel points to, but I would draw a different conclusion. My conclusion would be that if we are concerned for the taxpayer as well as the person who has her property forcibly taken from her, then we should simply not give government the power of eminent domain. No taking of private property would seem just, whether compensated or not, if this normative view of the situation makes sense.

Does this normative view make sense? I think this view makes a great deal of sense when private property is taken and transferred to other private property owners. In cases such as those of the Kelo opinion, it seems that government takes land from some, gives it to others, and then pays for the constitutional requirements of "just compensation" by taking from still others. Such situations seem far distant from any thought of the just of use government's coercive power.

And, here, finally, we are looking directly at the constitutional language written into the Takings Clause. If private property is taken for public use, then indeed, the politicians and government officials are acting on behalf of the rest of the community. We know this because the taken property becomes a road or a park which can and will be utilized by all members of the community. But, even in this case, the question of the just use of force to take property from others seems to call for a much different discussion than what follows from noting an experimental disparity in offer/ask.

Municipal Golf Course

I noted yesterday that a city government was exploring the use of eminent domain to take a private golf club, for the purpose of turning the course into a public golf course. The takings in the Kelo opinion were said to be for the public purposes of economic development. Of course the term public purposes is not the term found in the Takings Clause. The term in the takings clause is public use. If government takes a private golf course to then be the owner and manager of the course, and if government then says the course is a municipal or public golf course, wouldn't government be taking private property for public use?

Suppose we decide the answer is yes. Doesn't taking a private golf course to turn it into a public golf course seem to be something we don't want government to have the power to do?

Who Has An Idea For Mr. Smith's Land?

LA Daily News - Santa Clarita:

"In order to develop three sites viewed as key to improving downtown Newhall, the city may resort to invoking eminent domain if officials aren't satisfied with the property owners' plans for their land.

Such decisions will be up to the Santa Clarita City Council, acting as the city's redevelopment agency. The agency will look at current uses, developer's proposals and the property owners' plans for high-profile sites in the deteriorating business district.

'The property owners could choose to proceed or the city could do a request for proposals to develop the community project that would have the greatest impact to revitalize downtown,' said Paul Brotzman, the city's director of community development."

What does this sound like? Doesn't it sound like a city council is sitting around looking at property that belongs to others, assuming that it can decide how people use their own property?

And, what's even worse, we have parcels of land owned by private individuals, and it sounds like the city council is going to ask for project proposals from other people for the utilization of those parcels. "Hey, is there any body out there that would like to do something with Frank Smith's parcel at Fifth and Main? Just let us know what you have in mind, and if we like your idea, we can get the parcel for you!"

Taking Private Golf for Public Golf

Newsday.com:

"Lawsuits were filed Tuesday aimed at stopping an affluent suburban village from using the legal concept of eminent domain to take over a privately owned golf course."

Wow, taking a private golf club to turn it into a public golf course. Now I'm really getting angry about eminent domain abuse.

And there's this:

"Wilson said in a statement that the takeover "has nothing to do with a master plan that promotes the public good or eliminating blight, issues usually behind eminent domain. Rather, it is a naked grab for private property in an apparent effort to satisfy the private desires of a few elected officials."

No kidding? Politicians would be like that?

[Frank Eltman, "Lawsuits in eminent domain fight over suburban golf club," Newsday.com, March 7, 2006.]

Eminent Domain & Love Canal

Bruce Yandle tells the story of Love Canal which includes an interesting aspect that involves eminent domain. Of course, Love Canal is a hazardous waste site near Niagara Falls, N.Y.

Love Canal was originally created to supply water to hydroelectric generators. Later the area was purchased by Hooker Electrochemical Company, which became Hooker Chemicals and Plastics Company later still. In 1942 Hooker began using Love Canal to dispose of wastes.

In 1946 the Niagara Falls Board of Education told Hooker Chemical it was interested in purchasing the Love Canal parcel of land so it could build an elementary school there. Apparently Hooker said it was not interested.

In 1952 the Board of Education once again asked Hooker if it would sell the parcel. In addition, the Board indicated that it would use condemnation proceedings against the site if Hooker refused to sell voluntarily. Interesting, eh? Now it gets even more interesting:

"Hooker documented the waste stored in the canal and sold the parcel to the city for one dollar. The deed of transfer indemnified Hooker for all potential future liabilities and claims. The transfer also called for continued testing of the chemical waste site. With the passage of time, the Board of Education built a grammar school in the vicinity of the canal and sold the unused land to a residential developer. Documentation of the chemical wastes disappeared in the transaction.

Twenty-four years after Hooker had sold the land and following heavy highway construction and an unusually wet winter, residents of the Love Canal community began to experience problems with soil upheavals, chemical burns and contaminated groundwater. Homes were invaded by chemical wastes; grass and other vegetation died. Panic swept the residential community. In 1978 , Love Canal was declared a national disaster area, the elementary school was closed, 800 families were evacuated, and Hooker Chemical Company was targeted as the villian." (p. 78-79)

Don't Kelo My House

WSJ.com:

"The latest blowback comes from South Dakota, whose Governor this month signed a law prohibiting the state from using its power of 'eminent domain' to take private property for private economic development. No exceptions. No loopholes. The bill passed by unanimous vote in the state senate and 67-1 in the house."

Wow. Only 1 legislative no vote. Now, that's a super majority.

Oregon's Anti-Regulatory Takings

OpinionJournal

"Oregon's ballot measure, which passed with a mere 61% of the vote, required authorities to either compensate landowners for any reduction in the value of their property, or exempt them from the regulations. This was the second time voters had passed the measure, the first version having been tossed out on a technicality by the state's notoriously liberal Supreme Court."

OpinionJournal describes the Oregon measure as "anti-Kelo," but it seems to me it is anti-regulatory takings. It seems to me regulatory takings should, in general, fit within the Takings Clause, and the Oregon measure which was approved by a significant majority of voters seems to say so too.

[The Anti-Kelo Case: Oregon offers the nation a model for reform, OpinionJournal, Thursday, February 23, 2006 12:01 a.m. EST]

Kelo Economics?

Lior Strahilevitz makes what sounds like an economic argument in favor of the Kelo opinion:

Suppose that a wealthy nihilist owns a Frank Lloyd Wright home and announces a completely credible intention to burn it down. Should the state be able to condemn the property and, upon paying the nihilist fair market value, transfer it to the Frank Lloyd Wright Trust, a private entity that announces (again, completely crediby) an intention to turn it into a museum?

The holding of Kelo (and earlier cases like Berman v. Parker) suggest an affirmative answer, and I believe that the state should be able to use the eminent domain authority to condemn the home from the nihilist and transfer it to the preservationist. There is a strong economic argument for liability rule protection in this hypothetical, as opposed to property rule protection. There are probably enough people (neighbors and non-neighbors) who would derive substantial 'existence value' from knowing that the home survives and value the option of being able to drive by it or take a tour to outbid the nihilist in a world of no transaction costs. But high transaction costs will probably prevent those people from getting together and outbidding the nihilist for the home, even though they are the highest value users. So unless there are a large number of nihilists out there who derive 'non-existence value' from the home, it would seem that using the government's eminent domain authority to preserve the home is welfare maximizing.

[. . . .]

. . . . Preserving the home is its higher value use, and the government is merely acting to transfer property to a higher value user. . . . .

[. . . .]

. . . . I believe that thoughtful people tolerate eminent domain for the purpose of creating roads or airports because they recognize that these types of uses will usually enhance social welfare, and they resisted the use of eminent domain in Kelo based on skepticism about whether the government was a good agent for the public's interests there. . . .

I take the author's argument to be an economic argument because of his use of the concepts of existence value, option value, and highest valued use. Further, I assume the normative framework he is relying upon is that of economic efficiency. I believe his analysis is incorrect on efficiency grounds.

The analysis assumes there is both a significant option value and existence value associated with the home. This implies a positive externality market failure. I assume, therefore, that these conditions suggest that destroying the home would not be the highest valued use of the property. I disagree that the proper policy response, based upon efficiency, is for government to take the home and transfer it to someone who promises to preserve the home.

The general story I tell with respect to positive externalities is that the government's policy response should be to cause the marginal external benefit to become internalized in market prices. This can be done by government subsidizing the market activity that generates the positive externality. The story about the economics of positive externalities is usually not that government policy should take the market activity from private individuals and give it to those in the community who are enjoying the external benefit. Actually, I don't think I've ever heard policy proposals for positive externalities that sound like this.

I suggest that the economic efficiency analysis of this hypothetical would imply that government should offer an annual subsidy to reflect the existance value plus the option value enjoyed by others in the community because of the home. Such a policy would result in the present owner of the property seeing the value enjoyed by others in the community because of his home. This is exactly the mechanism by which positive externalities become internalized and efficiency can be achieved.

I suppose, given the nature of this hypothetical, that the owner of the home might not see the annual subsidy a sufficient incentive not to burn his home. Yet, if this were the case, and if we were to assume that government figured out the correct value of the external benefit, then I think we would have to say the owner's use of the property was the higher valued use vis a vis preservation of the home. There would be an additional consideration here as well. There would be a good chance (it seems to me) that when government offered to pay an annual subsidy for preservation of the home that one result would be an increase in demand for the property. Someone might well choose then to offer a sufficient amount to the home owner to successfully purchase the home, convert it to a museum, and collect the annual subsidy as well as the annual revenue from operation of the home as a museum.

I believe there is another possible efficient policy response by government to the positive externality posed here. Government could purchase the property from the person who owns the property. Of course, this starts to encourage us to think of the efficient policy being the use of eminent domain. That is, the home's owner has refused to accept "fair market value" to sell the home, and this is the reason it is suggested that taking the home can cause the property to be transferred to a higher value use. Would the efficiency analysis in this case suggest that government should only offer to pay "fair market value" to obtain the home? I think not. After all, this case is one of a positive externality and that means that there is a divergence between marginal private benefit and marginal social benefit, and the "fair market value" is going to reflect only the lower marginal private benefit. For efficiency, government's offer price should be up to the full marginal social benefit, which according to the assumptions of the hypothetical is a value that is significantly greater than the fair market value.

Of course, there is still the possibility that the owner of the home will not sell. Once again, this would imply that the higher valued use of the property was with the present owner. I suppose one might hear the suggestion that, as the author of the analysis suggests in his update, the owner of the home is a nihilist who holds antisocial preferences. On this the author suggests:

Where people have antisocial preferences of this kind, we might worry about whether they'll negotiate optimally . . . .

I believe such a suggestion neglects a fundamental value judgment upon which economic efficiency analysis is based. Efficiency analysis specifically takes individual preferences as given, and as such, efficiency analysis does not judge whether an individual's preferences are good or bad. Deciding to describe the preferences of the home owner as antisocial seems to me to judge the owner's preferences. If the owner will not sell when the price offered includes the full marginal social benefit associated with the preserved home, then I think the safest conclusion for efficiency analysis is that preserving the home is not the most highly valued use of the property.

I think that efficiency analysis of this hypothetical suggests another very important point. The takings clause requires "just compensation" when government takes private property for public use. I will take it for granted that if government took the home in question and then created a publicly owned and operated museum that preserved the home, the government would be taking private property for public use. For this taking to be constitutional, compensation would have to be "just." What is just compensation in this case? Is just compensation in this case "fair market value?" I think efficiency analysis would suggest that it is not. If we are going to justify the use of eminent domain to correct the market failure of a positive externality, then it seems to me we have to recognize that "fair market value" is not the full economic value of the property. The full economic value of the property is the marginal social benefit, and this value is assumed in our hypothetical to be significantly greater than the market value. Therefore, it seems to me, just compensation for this taking should be defined in terms of the full social benefit of the preserved property.

On efficiency grounds, for the hypothetical being discussed, I conclude that the best efficiency policy is for government to offer a subsidy for preservation to reflect the marginal external benefit associated with option and existence values. I might be willing to accept the idea that the power of eminent domain is also consistent with efficiency, but ONLY IF "just compensation" is defined to reflect the external benefit not reflected in the market value of the property.

Finally, I want to say something that moves me away from economic efficiency analysis. Professor Strahilevitz writes:

I believe that thoughtful people tolerate eminent domain for the purpose of creating roads or airports because they recognize that these types of uses will usually enhance social welfare . . . .

The Takings Clause does not mention enhancing social welfare. It says private property can be taken for public use, not for enhancing social welfare. I suspect those who wrote and those who ratified the Takings Clause got it right. I suspect people "tolerate eminent domain" for roads and airports because roads and airports are public uses of the property. I can't prove it. But, I suspect that people grant the power of eminent domain to government when the property becomes a road or an airport because they realize they are very likely to use both, just like every other person in the community. And, of course, use of the power of eminent domain is supposed to be constrained by government having to paying just compensation. For people to tolerate the power of eminent domain I suspect it must also be the case that the compensation provided be government must truely be a just compensation.

Baseball Fields & Swimming Pool

The Desert Sun
February 15, 2006

For the second time in the 18 years since the controversial John Nobles Ranch neighborhood was razed, the city may pursue eminent domain for a major city project other than road widening.

With more than a third of the city's burgeoning population under 18, according to the U.S Census Bureau, Indio officials want to provide more recreation for youths and plan to build a 45-acre sports complex that would feature an Olympic-size pool and four full-sized baseball diamonds.

The city is gearing up for eminent domain proceedings to make the park a reality for its 66,000 residents, which city officials say could reach 131,000 within five years.

Eminent domain is the right of a government agency to claim and buy private property for public use."

Here again eminent domain is referred to as a government right. Government doesn't have rights. People have rights. Government has the power of eminent domain to take private property from people.