law and economics-charles w. upton takings. when the government takes property, the constitution...
Post on 19-Dec-2015
212 views
TRANSCRIPT
Law and Economics-Charles W. Upton
Takings
Takings
Takings
• When the government takes property, the Constitution requires that “just compensation”. – The government exercises its power of eminent
domain, condemns the property and then pays the fair market value.
Takings
An Example
• A city wants to build a fire station on Sam’s property. – It sees benefits (use value) of $70,000.– While the market value of the property is
$50,000, Sam would would want $80,000 to compensate him for his use value.
Takings
An Example
• A city wants to build a fire station on Sam’s property. – It sees benefits (use value) of $70,000.
– While the market value of the property is $50,000, Sam would would want $80,000 to compensate him for his use value.
• In general, however, the city can take the property for $50,000, the fair market value, reducing the use value form $80,000, to $70,000.
Takings
An Example
• A city wants to build a fire station on Sam’s property. – It sees benefits (use value) of $70,000.
– While the market value of the property is $50,000, Sam would would want $80,000 to compensate him for his use value.
• In general, however, the city can take the property for $50,000, the fair market value, reducing the use value form $80,000, to $70,000.
This is not Hicks-Kaldor efficient.
Sam loses $30,000; the city gains $20,000.
Takings
An Example
• A city wants to build a fire station on Sam’s property. – It sees benefits (use value) of $70,000.
– While the market value of the property is $50,000, Sam would would want $80,000 to compensate him for his use value.
• In general, however, the city can take the property for $50,000, the fair market value, reducing the use value form $80,000, to $70,000.
This is not Hicks-Kaldor efficient.
Sam loses $30,000; the city gains $20,000.
The alternative would be to require the city to pay Sam its true value, but only Sam knows its
true value. He has every incentive to
overstate its value in any litigation.
Takings
Owner Fair Market Value
Use Value to the Owner
Use Value as a fire Station
Sam Jones
$50,000 $80,000 $70,000
Mildred Brown
$55,000 $60,000 $68,000
Takings
Owner Fair Market Value
Use Value to the Owner
Use Value as a fire Station
Sam Jones
$50,000 $80,000 $70,000
Mildred Brown
$55,000 $60,000 $68,000
The Right Choice
Takings
Owner Fair Market Value
Use Value to the Owner
Use Value as a fire Station
Sam Jones
$50,000 $80,000 $70,000
Mildred Brown
$55,000 $60,000 $68,000
The Right Choice
The City’s Choice
Takings
The Case for Eminent Domain
• Indispensable property.
Takings
The Case for Eminent Domain
• Indispensable property.– There is only one property that would do the
job. A mountain pass where a fort must be built to protect against invasion.
Takings
The Case for Eminent Domain
• Indispensable property.– There is only one property that would do the
job. A mountain pass where a fort must be built to protect against invasion.
• When multiple properties must be purchased.
Takings
The Case for Eminent Domain
• Indispensable property.– There is only one property that would do the
job. A mountain pass where a fort must be built to protect against invasion.
• When multiple properties must be purchased. – There may be a transactions cost argument
Takings
Eminent Domain for Private Use
• The taking power is used sometimes to take property from one person to another.
Takings
Eminent Domain for Private Use
• The taking power is used sometimes to take property from one person to another. – Urban renewal.– Condemnation of land for a baseball field.
Takings
Eminent Domain for Private Use
• Sam Jones owns property that the market values at $40,000.
Takings
Eminent Domain for Private Use
• Sam Jones owns property that the market values at $40,000. – The use value to him is $80,000.
Takings
Eminent Domain for Private Use
• Sam Jones owns property that the market values at $40,000. – The use value to him is $80,000. – Sally Smith wants the house and the use value
to her is $90,000. .
Takings
Eminent Domain for Private Use
• Sam Jones owns property that the market values at $40,000. – The use value to him is $80,000. – Sally Smith wants the house and the use value
to her is $90,000. – A deal can clearly be struck for (say) $85,000.
Takings
Eminent Domain for Private Use
• Sam Jones owns property that the market values at $40,000. – The use value to him is $80,000. – Sally Smith wants the house and the use value
to her is $90,000. – A deal can clearly be struck for (say) $85,000. – But suppose Sally Smith gets the state to
condemn the property for $50,000 and then sell it to her.
Takings
End
©2004 Charles W. Upton