Private Takings

Alessandro Marchesiani () and Ed Nosal

No WP-2014-26, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: This paper examines the implications associated with a recent Supreme Court ruling, Kelo v. City of New London. Kelo can be interpreted as supporting eminent domain as a means of transferring property rights from one set of private agents ? landowners ? to another private agent ? a developer. Under voluntary exchange, where the developer sequentially acquires property rights from landowners via bargaining, a holdout problem arises. Eminent domain gives all of the bargaining power to the developer and, as a result, eliminates the holdout problem. This is the benefit of Kelo. However, landowners lose all their bargaining power and, as a result, their property investments become more inefficient. This is the cost of Kelo. A policy of eminent domain increases social welfare compared to voluntary sequential exchange only when the holdout problem is severe, and this occurs only if the developer has very little bargaining power. We propose an alternative government policy that eliminates the holdout problem but does not affect the bargaining power of the various parties. This alternative policy strictly dominates a policy of eminent domain, which implies that eminent domain is an inefficient way to transfer property rights between private agents.

Keywords: Private Property; Private Takings; Property Rules; Liability Rules (search for similar items in EconPapers)
JEL-codes: H42 K00 K10 K11 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2014-11-12
New Economics Papers: this item is included in nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Private takings (2017)
Working Paper: Private takings (2007)
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