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Takings of Land by Self-Interested Governments: Economic Analysis of Eminent Domain

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  • Hans-Bernd Schäfer
  • Ram Singh

Abstract

In this paper, we model and examine the effects of two salient features of eminent-domain law and its use. First, the compensation is less than full. Second, the government is not a perfect agent of society. Once these features are taken into account, several claims in the existing literature do not hold. Our results question the fiscal illusion theory. We show that full compensation ensures efficiency neither of the takings nor of the investment decisions. Moreover, departure from efficiency can get worse with the tightening of budget constraints. However, undercompensation, combined with the provision of restitution, delivers a better outcome in terms of investment choices by the owners and the taking decisions and choice of projects by the government. Furthermore, we show that fixed-compensation schemes generally are not efficient even if the government is benevolent, but undercompensation can still deliver an outcome more efficient than full compensation.

Suggested Citation

  • Hans-Bernd Schäfer & Ram Singh, 2018. "Takings of Land by Self-Interested Governments: Economic Analysis of Eminent Domain," Journal of Law and Economics, University of Chicago Press, vol. 61(3), pages 427-459.
    • Handle: RePEc:ucp:jlawec:doi:10.1086/699242
    DOI: 10.1086/699242
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    Cited by:

    1. Ram Singh, 2019. "Kaushik Basu: The republic of beliefs: A new approach to law and economics," Indian Economic Review, Springer, vol. 54(2), pages 371-380, December.

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