Eminent Domain for Private Use

The alleged market-failure “justification” for using eminent domain to obtain property for a private development is that compulsory transfers are necessary in order to overcome holdout problems. After all, this argument continues, only the state has such power, so the private sector would be unable to supply the efficient amount of land-extensive developments. This market-failure justification is examined from two different perspectives in order to demonstrate that it is not efficacious. Section 2 provides a direct examination of the alleged holdout problem to demonstrate that, while government entities may face significant holdouts, the magnitude of any market failure that might actually exist with a private development is much less significant than this argument assumes. Section 3 follows with an examination of the actual historical evolution of eminent domain powers and its accompanying requirement for compensation to illustrate that the actual development reflects repeated efforts to constrain government rather than to solve market failures. Section 4 explains that, as with earlier efforts to constrain government, the United States’ constitutional requirements of public use and just compensation have gradually broken down. As a consequence, eminent domain powers actually result in substantial government failure. Therefore, even if there is a potential market-failure, the high likelihood of government failure undermines the claim that eminent domain is an appropriate solution to the market failure. The concluding comments in Section 5 point out, however, that eminent domain is only one type of government takings.