Eminent domain, Inc.

Columbia Law Review

Volumn 107, Issue 7, 2007, Pages 1704-7148

  Lehavi, Amnon ^a,b,c   Licht, Amir N ^a,c,d  

^a INTERDISCIPLINARY CENTER   (Israel)

^b YALE UNIVERSITY   (United States)

^c TEL AVIV UNIVERSITY   (Israel)

^d HARVARD UNIVERSITY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 37349087249     PISSN: 00101958     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (208)

1. 545 U.S. 469 (2005).
2. U.S. Const. amend. V, § 4.
3. For a survey of the wall-to-wall criticism of Kelo, see Abraham Bell & Gideon Parchomovsky, The Uselessness of Public Use, 106 Colum. L. Rev. 1412, 1423-26 (2006) [hereinafter Bell & Parchomovsky, Uselessness] (arguing, against Kelo's critics, that it conforms to setded law about government powers with respect to property, and that just compensation requirement makes eminent domain rather less pernicious than other forms of uncompensated governmental intervention).
4. Some of Kelo's critics call for an outright ban on what they deem to be essentially private takings in disguise. See, e.g., Charles E. Cohen, Eminent Domain After Kelo v. City of New London: An Argument for Banning Economic Development Takings, 29 Harv. J.L. & Pub. Pol'y 491, 547-51 (2006) (discussing possible abuse of eminent domain by politically powerful groups and concluding that "ready availability of eminent domain for economic development projects poses grave risks of unfairness, inefficiency, and abuse");
5. Gideon Kanner, Kelo v. New London: Bad Law, Bad Policy, and Bad Judgment, 38 Urb. Law. 201, 233-35 (2006) [hereinafter Kanner, Bad Law] (concluding that Kelo majority "surrendered the vital function of constitutional review to an unaccountable, self-serving business-government alliance").
6. Dana Berliner, Opening the Floodgates: Eminent Domain Abuse in the Post-Kelo World 1 (2006), available at http://www.castlecoalition.org/ pdf/publications/floodgates-report.pdf (on file with the Columbia Law Review).
7. See Patricia E. Salkin, Eminent Domain Legislation Post-Kelo: A State of the States, 36 Envtl. L. Rep. 10864, 10865-70 (2006) (describing changes to eminent domain laws since Kelo);
8. Castle Coalition, 50 State Report Card: Tracking Eminent Domain Reform Legislation Since Kelo 1 (2007), available at http://www.castlecoalition. org/pdf/publications/report_card/50_State_Report.pdf (on file with the Columbia Law Review) (introducing evaluation of eminent domain laws by noting that since Kelo, "[forty-two] states have passed new laws aimed at curbing the abuse of eminent domain for private use").
9. City of Norwood v. Horney, 853 N.E.2d 1115 (Ohio 2006).
10. Bd. of County Comm'rs v. Lowery, 136 P.3d 639 (Okla. 2006).
11. See infra Part I.B.
12. Kelo v. City of New London, 545 U.S. 469, 472-75 (2005).
13. Id. at 475.
14. Id.
15. Id. at 473-90.
16. Ellaine Stoll, City Votes to Proceed with Property Seizures, Day (New London, Conn.), June 6, 2006, at A1.
17. Ted Mann, Fort Trumbull Saga Ends on Costly Note, Day (New London, Conn.), Aug. 23, 2006, at A1.
18. Id. It should be noted that these additional funds came, as did most of the $73 million expended over the project's course up to that point, from the State Department of Economic and Community Development, which has largely underwritten New London's redevelopment efforts. Id.
19. Anne Saunders, Kelo Urges NH to Restrict Powers of Eminent Domain, Union Leader (Manchester, N.H.), Sept. 22, 2006, at A2.
20. See Michael A. Heller, The Tragedy of the Anticommons: Property in the Transition from Marx to Markets, 111 Harv. L. Rev. 621, 667-79 (1998) (defining "anticommons" and exploring effect on scarce resource when many individuals have rights to it).
21. The anticommons problem is obviously not unique to land. It may also deter scientific innovation; for example, granting patents in isolated gene fragments may hamper development of integrative biomedical products. Michael A. Heller & Rebecca S. Eisenberg, Can Patents Deter Innovations? The Anticommons in Biomedical Research, 280 Sci. 698, 699-701 (1998).
22. See Thomas W. Merrill, The Economics of Public Use, 72 Cornell L. Rev. 61, 74-77 (1986) (discussing thin market settings).
23. Richard A. Posner, Economic Analysis of Law 55 (6th ed. 2003). The term "opportunity cost" generally refers to the economic cost of an alternative that is, or might be, foregone - in this case, the value of using the land for the designated public project. See id. at 6.
24. See Merrill, supra note 19, at 97-98 (noting high proportion of land assembly cases, and especially of public utilities, in use of governmental eminent domain powers).
25. See Harry N. Scheiber, Property Law, Expropriation, and Resource Allocation by the Government: The United States, 1789-1910, 33 J. Econ. Hist. 232, 237 (1973) ("[T]he most important single development in early nineteenth century eminent domain law probably was the wholesale transfer of [cost-reducing, expediting] doctrines over to the private sector, in aid of incorporated companies on which legislatures devolved the power of eminent domain.").
26. See Wendell E. Pritchett, The "Public Menace" of Blight: Urban Renewal and the Private Uses of Eminent Domain, 21 Yale L. & Pol'y Rev. 1, 9-13 (2003) (recounting development of eminent domain doctrine from American Revolution to first half of twentieth century).
27. See, e.g., Steele v. Mo. Pac. R.R. Co., 659 P.2d 217, 222-24 (Kan. 1983); Burlington N. & Santa Fe Ry. Co. v. Chaulk, 631 N.W.2d 131, 137 (Neb. 2001); Cabletelevision of the Midwest, Inc. v. Gross, 639 N.E.2d 1154, 1156-57 (Ohio 1994). See generally 26 Am. Jur. 2d Eminent Domain § 28 (2004) (describing principles and limits of legislative conferral of eminent domain power to private entities).
28. See, e.g., Richard A. Epstein, Takings: Private Property and the Power of Eminent Domain 166-69 (1985) (arguing that "[a] large core of activities falls within this conception of public goods, so the economic conception, however interpreted, easily legitimates the state's exercise of its eminent domain power").
29. See Carol Rose, The Comedy of Commons: Custom, Commerce, and Inherently Public Property, 53 U. Chi. L. Rev. 711, 723-30, 762-66 (1986).
30. For criticisms of these eminent domain-backed programs, and especially of their acute adverse distributional outcomes on members of low-income minorities, see Bernard J. Frieden & Marshall Kaplan, The Politics of Neglect: Urban Aid from Model Cities to Revenue Sharing 24-25 (1975) (arguing that "[a]fter taking over [low-income] neighborhoods for the benefit of others, the cities gave only belated and inadequate attention to the problem of finding decent relocation housing for the former residents");
31. Jane Jacobs, The Death and Life of Great American Cities 270-90 (1961) ("At best, [urban renewal] merely shifts slums from here to there, adding its own tincture of extra hardship and disruption. At worst, it destroys neighborhoods where constructive and improving communities exist and where the situation calls for encouragement rather than destructions."); Pritchett, supra note 23, at 31-47 (noting that in cities across United States, urban renewal came to be known as "Negro clearance"). See also Justice Thomas's dissenting opinion in Kelo v. City of New London, 545 U.S. 469, 520-23 (2005) (Thomas, J., dissenting) ("So-called 'urban renewal' programs provide some compensation for the properties they take, but no compensation is possible of the subjective value of these lands to the individuals displaced and the indignity inflicted by uprooting them from their homes.").
32. Int'l Econ. Dev. Council, Targeted Area Redevelopment 3-8 (2005).
33. See Rachel G. Bratt, Community Development Corporations and Other Nonprofit Housing Organizations: Challenges Presented by the Private Housing Market 8-11 (2006) (unpublished working paper, on file with the Columbia Law Review) (noting successful redevelopment initiatives "are not based in a single community").
34. For the work of Community Development Corporations (CDCs) and the comprehensive approach they take in rehabilitating neighborhoods, see generally Avis C. Vidal, Rebuilding Communities: A National Study of Urban Community Development Corporations (1992) (presenting findings of research regarding structure, accomplishments, and potential growth of CDCs);
35. Alexander Von Hoffman, House by House, Block by Block: The Rebirth of America's Urban Neighborhoods (2003) (describing CDCs efforts in revitalizing major American cities).
36. Many U.S. cities suffer from staggering numbers of vacant lots and abandoned buildings, whose negative effects include increased crime, environmental and safety hazards, decreased adjacent property values, and self-perpetuating disinvestments. See Alan Mallach, Bringing Buildings Back: From Abandoned Properties to Community Assets 1-9 (2006) (discussing distribution, characteristics, causes, and effects of abandoned properties);
37. Michael A. Pagano & Ann O'M. Bowman, Brookings Inst., Vacant Land in Cities: An Urban Resource 1-3 (2000), available at http://www.brookings.edu/es/ urban/pagano/paganoexsum.htm (on file with the Columbia Law Review) (finding that, on average, fifteen percent of urban land is vacant);
38. Lavea Brachman, Vacant and Abandoned Properly: Remedies for Acquisition and Redevelopment, Land Lines, Oct. 2005, at 1, 1-6 (stating that "prevalence of vacant and abandoned property in U.S. cities has reached crisis proportions" and discussing potential remedies).
39. This was made possible by Section 121A of Massachusetts General Laws, which allows a local renewal agency to empower a charitable organization to carry out a redevelopment project and to employ the power of eminent domain for that purpose. Mass. Gen. Laws ch. 121A, § 3 (2003).
40. Peter Medoff & Holly Sklar, Streets of Hope: The Fall and Rise of an Urban Neighborhood 117 (1994).
41. Id. at 119-21.
42. Id. at 129-47, 154-58. To ensure both concentrated control over the land and its affordability for low-income residents for generations to come, DSNI set up a Community Land Trust (CLT). The Dudley CLT thus owns the land in perpetuity, and the individual homeowner leases the land for a long period and is the owner of the building. The resale price is restricted to a formula aimed at giving the departing homeowner a fair return on his investment, while at the same time giving future homebuyers fair and affordable access to this housing. Other mechanisms embedded in the CLT, and especially its unique tri-layered property structure, preserve the ongoing, collective neighborhood control over the project. Id. at 158-67. DSNI's activity later extended to the entire neighborhood's area. Id. at 161-67. For the CLT's structure and property attributes, see John Emmeus Davis, Nat'l Hous. Inst., Shared Equity Homeownership: The Changing Landscape of Resale-Restricted, Owner-Occupied Housing 18-23 (2006), available at http://www.nhi.org/pdf/SharedEquityHome.pdf (on file with the Columbia Law Review).
43. See supra notes 1-7 and accompanying text.
44. See, e.g., Cohen, supra note 3, at 498 (arguing "for a . . . ban on takings for economic development, enacted either by state legislation or . . . state constitutional amendment"); Kanner, Bad Law, supra note 3, at 203 (arguing that Kelo's "premise is flawed" because it holds that public use requirement is met simply if "municipal functionaries predict that more money will be made from the subject property in the redevelopers' hands than its present owner's"); Ilya Somin, Overcoming Poletown: County of Wayne v. Hathcock, Economic Development Takings, and the Future of Public Use, 2004 Mich. St. L. Rev. 1005, 1009-16 (arguing that "categorical ban on economic development takings is the best way to control abuse of the eminent domain power for the benefit of private interests"). But cf. Bell & Parchomovsky, Uselessness, supra note 3, at 1445-49 (arguing that narrow public use doctrine harms property owners since government retains other means of seizing property);
45. Nicole Stelle Garnett, The Public-Use Question as a Takings Problem, 71 Geo. Wash. L. Rev. 934, 982 (2003) (offering interim "means-ends" scrutiny approach rather than flat prohibition on certain types of projects).
46. See Robert C. Ellickson & Vicki L. Been, Land Use Controls 845-54 (3d ed. 2005);
47. Daniel B. Kelly, The "Public Use" Requirement in Eminent Domain Law: A Rationale Based on Secret Purchases and Private Influence, 92 Cornell L. Rev. 1, 18-31 (2006) (arguing that ability of secret buying agents to overcome holdout problems associated with assembling large tracts of land mitigates private parties' need for eminent domain).
48. For a critical analysis of an unusual transaction in which the American Electric Power Company (AEP) bought out the entire small town of Cheshire, Ohio, in 2002 to solve the problem of pollution from AEP's coal-fired power plant, see Gideon Parchomovsky & Peter Siegelman, Selling Mayberry: Communities and Individuals in Law and Economics, 92 Cal. L. Rev. 77, 78-89 (2004).
49. Kelly, supra note 37, at 31-33.
50. See Nicole Stelle Garnett, The Neglected Political Economy of Eminent Domain, 105 Mich. L. Rev. 101, 127-30 (2006) [hereinafter Garnett, Neglected Political Economy].
51. See Forest City Ratner Cos., Adantic Yards: A Vision for Downtown Brooklyn, at http://www.atlanticyards.com (last visited Oct. 6, 2007) (on file with the Columbia Law Review).
52. In 2005, the city and the state agreed to commit $100 million each to help fund the project's infrastructure. In January 2007, the city announced it would add an extra $105 million in subsidy "for extraordinary infrastructure costs relating to the mixed use development." Eliot Brown, Bloomberg's Budget Doubles Subsidy for Atlantic Yards, N.Y. Sun, Jan. 30, 2007, at 3.
53. Although FCRC's commitment to affordable housing within the project, including for current rent-stabilized renters, has softened some of the public criticism, neighborhood groups still contest the proposed arrangements, and have recently filed a claim in state court, arguing that these plans fail to meet state legislative standards. Andy Newman, Tenants Sue Agency over Brooklyn Project, N.Y. Times, Jan. 13, 2007, at B3.
54. See Nicholas Confessore, Adantic Yards Enters New Phase, and Faces Next Hurdle: Lawsuits, N.Y. Times, Dec. 22, 2006, at B9.
55. See Elaine Misonzhnik, Getting Closer, Retail Traffic, Jan. 1, 2007, at 13, 13.
56. Confessore, supra note 43.
57. General information regarding Develop Don't Destroy Brooklyn is available at http://www.developdontdestroy.org (last visited Oct. 6, 2007).
58. Confessore, supra note 43.
59. See generally Margaret Jane Radin, Reinterpreting Property 36-63 (1993) (describing personhood building theory of private property, its philosophical underpinnings, and its application to American legal system).
60. Lee Anne Fennell, Taking Eminent Domain Apart, 2004 Mich. St. L. Rev. 957, 966-67; Garnett, Neglected Political Economy, supra note 39, at 109-10 (describing this type of insult as "dignitary harm[]").
61. See Leonora LaPeter, A Final Preservation, St. Petersburg Times, Sept. 19, 2004, at 1B.
62. A vivid illustration of a land assembly holdout - the motives for which remain unclear - is depicted in a recent report in The Washington Post. Austin Spriggs and his wife, Gladys, own a 116-year-old townhouse in Washington, D.C., which they bought in 1980 for $135,000 and now used as an office for the family's small architecture firm. When developers began purchasing property along this area of Massachusetts Avenue near the Convention Center and Union Station in 2003, Spriggs refused to sell. While all his neighbors eventually sold their homes and businesses, Spriggs could not be persuaded despite being offered $2 to $3 million for a house assessed at just under $200,000. The developers finally determined they would wrap a twelve-story office building and an upscale condominium around Spriggs's house. Meanwhile, the house has been secured at the developers' expense (adding about $600,000 in costs) and is monitored daily to make sure it does not slip off its tenuous base. The end of this holdout's story is not yet known, but according to the president of a Maryland-based pizza chain, Spriggs intends to open a pizza franchise just in time for the condominium dwellers and office workers who will move into the neighborhood during 2007. Lyndsey Layton, A Solitary Stand at the Precipice, Wash. Post, May 3, 2006, at A01.
63. See Misonzhnik, supra note 44, at 13 ("These things can drag on for years and, unfortunately, around the country these sorts of lawsuits have caused well-intentioned urban renewal projects to die by the thousands.").
64. Although, as we have seen, in some cases landowners, and especially the last to hold out, are able to enjoy a substantial extralegal premium. See supra notes 14-15 and accompanying text.
65. See, e.g., Posner, supra note 20, at 56 (viewing landowners as subsidizing their subjective values). But see Garnett, Neglected Political Economy, supra note 39, at 121-26 (arguing that this problem is largely overstated because actual compensation, given also relocation assistance laws, often exceeds formal "fair market value").
66. Fennell, supra note 49, at 962-67.
67. We do not address broader questions of "distributive justice" or "vertical equity" concerning the relevant society as a whole, and we doubt whether takings in general is an appropriate arena for addressing such policy issues. For a contrary view, see Hanoch Dagan, Takings and Distributive Justice, 85 Va. L. Rev. 741, 767-78 (1999) (calling for explicit incorporation of "social responsibility" as component in defining scope of landowners' rights in takings cases).
68. Merrill, supra note 19, at 88-89 (depicting deliberate market bypasses through eminent domain).
69. See, e.g., Lawrence Blume et al., The Taking of Land: When Should Compensation Be Paid?, 99 Q.J. Econ. 71, 88 (1984) (describing "fiscal illusion" by which uncompensated project is presented as costless);
70. Robert C. Ellickson, Suburban Growth Controls: An Economic and Legal Analysis, 86 Yale L.J. 385, 420 (1977) (viewing compensation as a pricing mechanism).
71. See William A. Fischel & Perry Shapiro, Takings, Insurance, and Michelman: Comments on Economic Interpretation of "Just Compensation" Law, 17 J. Legal Stud. 269, 286-87 (1988) (discussing possible reasons for lack of private insurance market and inadequacy of such market even if extant).
72. See, e.g., Garnett, Neglected Political Economy, supra note 39, at 138-43 (arguing that economic theories of takings assume policymakers discount costs "not translated into budgetary expenditures" but do not discount similarly untranslated benefits and so fail to account for political incentives); Deryl J. Levinson, Making Governments Pay: Markets, Politics, and the Allocation of Constitutional Costs, 67 U. Chi. L. Rev. 345, 348-51 (2000) (criticizing assumption that governments do not consider externalized costs).
73. See, e.g., Daniel A. Farber, Public Choice and Just Compensation, 9 Const. Comment. 279, 289-90 (1992) (noting that somewhat ironically, payment of compensation serves to buy off burdened property owners, which is only other constituency able to effectively resist development plans);
74. Donald J. Kochan, "Public Use" and the Independent Judiciary: Condemnation in an Interest-Group Perspective, 3 Tex. Rev. L. & Pol. 49, 80-82 (1998) (listing several factors that allow special interest groups to successfully influence land use policy).
75. See Kelly, supra note 37, at 37-39. But see Christopher Serkin, Big Differences for Small Governments: Local Governments and the Takings Clause, 81 N.Y.U. L. Rev. 1624, 1664-65 (2006) (suggesting that these propositions do not apply equally to all levels of government, and arguing that majoritarian homeowner-dominated local governments are forced "to internalize at least some of the costs" of eminent domain).
76. 348 U.S. 26, 33-36 (1954) (upholding use of eminent domain as part of District of Columbia Redevelopment Act of 1945, which targeted "blighted" areas in southwest Washington, D.C.).
77. 304 N.W.2d 455, 459-60 (Mich. 1981) (per curiam) (validating use of eminent domain by Detroit on entire neighborhood for construction of new General Motors plant), overruled by County of Wayne v. Hathcock, 684 N.W.2d 765, 787 (Mich. 2004) (holding that condemnation of 1300 acres for private business park is invalid as matter of state constitutional law).
78. Kelo v. City of New London, 545 U.S. 469 (2005).
79. For a fifty-state survey of such alleged abuses, see generally Dana Berliner, Public Power, Private Gain: A Five-Year, State-By-State Report Examining the Abuse of Eminent Domain (2003), available at http://www. castlecoalition.org/pdf/report/ED_report.pdf (on file with the Columbia Law Review). One should recall, however, that some of the high-profile eminent domain legal controversies revolved around public plans that had different distributive goals. Thus, in Hawaii Housing Authority v. Midkiff, the Supreme Court validated the Hawaii Land Reform Act of 1967, which allowed the tenants of Hawaii's landowning oligopoly to request condemnation of the landowners' property and to purchase the condemned property for a nominal fee. 467 U.S. 229, 245 (1984).
80. 304 N.W.2d at 469.
81. See, e.g., Amnon Lehavi, Intergovernmental Liability Rules, 92 Va. L. Rev. 929, 948-52 (2006) (noting that reliance on local revenues results in fiscalization of zoning decisions);
82. Jonathan Schwartz, Prisoners of Proposition 13: Sales Taxes, Property Taxes, and the Fiscalization of Municipal Land Use Decisions, 71 S. Cal. L. Rev. 183, 209-13 (1997-98) (describing impact of fiscal decisions made by rival communities).
83. For an oveniew of TIFs, see generally J. Drew Klacik & Samuel Nunn, A Primer on Tax Increment Financing, in Tax Increment Financing and Economic Development: Uses, Structures, and Impact 15, 15-29 (Craig L. Johnson & Joyce Y. Man eds., 2001) (discussing history, themes, terminology, and implications of tax increment financing).
84. See Rachel Weber, Tax Increment Financing in Theory and Practice, in Financing Economic Development in the 21st Century 53, 55 (Sammis B. White et al. eds., 2003). For the legal validity of TIFs, see, for example, In re Request for Advisory Opinion on Constitutionality of 1986 PA 281, 422 N.W.2d 186, 191-96 (Mich. 1988) (rejecting argument that TIF is constitutionally impermissible diversion of school districts' tax funds under Michigan law). Some states do, however, limit the ability of redevelopment agencies to receive all tax increments generated from the project's area.
85. See, e.g., David F. Beatty et al., Redevelopment in California 212-18 (3d ed. 2004) (describing such mitigating constitutional and statutory provisions in California).
86. See Beatty et al., supra note 70, at 175.
87. See Michael Dardia, Subsidizing Redevelopment in California 29 (1998), available at http://www.ppic.org/main/publication.asp?i=70 (on file with the Columbia Law Review) (noting that where increase in tax revenue is due to general trends in real estate market, TIFs act as involuntary subsidies from counties and school districts to cities);
88. Richard F. Dye & David F. Merriman, The Effects of Tax Increment Financing on Economic Development, 47 J. Urb. Econ. 306, 307 (2000) (arguing competitive government bidding could be zero-sum game with gains to some offset by losses to others); Weber, supra note 70, at 63 (noting studies showing evidence that positive effect on growth in property value in TIF district is offset by negative impact in non-TIF districts of same city).
89. 483 U.S. 825, 837 (1987) (requiring "essential nexus" between exaction and development's expected harm to its surroundings).
90. 512 U.S. 374, 391 (1994) (imposing "rough proportionality" requirement both in nature and in scope between exaction and anticipated impacts of proposed development).
91. For a critique of the Court's exactions jurisprudence, see Mark Fenster, Takings Formalism and Regulatory Formulas: Exactions and the Consequences of Clarity, 92 Cal. L. Rev. 611, 652 (2004) (arguing that Court's insistence on formalistic rules fails to address real life land use needs).
92. See Abraham Bell & Gideon Parchomovsky, Givings, 111 Yale L.J. 547, 590-608 (2001) (criticizing Court's approach to "givings" and calling for imposition of tax on certain types of land use regulatory benefits).
93. [2005] EWHC (Admin) 18, [5] (noting that beyond 60,000 capacity stadium, mixed-use scheme included learning centers, new and refurbished houses, general business space, shops, and leisure spaces).
94. Id. at [20].
95. Id. at [19]-[20]. Legal compensation to landowners in Britain resembles the U.S. regime, and thus denies condemnees a share in the future appreciation of land value resulting from the project. This is known as the "Pointe Gourde" rule (or "no-scheme rule"), according to which compensation "cannot include an increase in value which is entirely due to the scheme underlying the acquisition." Pointe Gourde Quarrying & Transp. Co. v. Sub-Intendent of Crown Lands, [1947] A.C. 565, 572 (P.C. 1947) (appeal taken from Trin.). This principle was recendy reaffirmed by the House of Lords in Waters v. Welsh Dev. Agency, [2004] UKHL 19, [40]-[42], [55]-[57], 2004 2 All E.R. 915 (noting that Pointe Gourde principle ensures "dispossessed owners . . . receive fair compensation but not more than fair compensation").
96. Planning and Compulsory Purchase Act, 2004, c. 5, § 99(1)-(4), sched. 9 (amending Town and Country Planning Act, 1990, c. 8, § 226(1)).
97. Planning and Compulsory Purchase Act, 2004, c. 5, § 99(3). In addition, Section 226(4) regards as "immaterial by whom the local authority propose that any activity . . . should be undertaken or achieved" thus explicitly validating the plan's private implementation. For an elaborate discussion of these recent changes, see Richard Clayton, New Directions in Compulsory Purchase, 2006 J. Plan. & Envtl. L. 133, 133-37.
98. Other recent cases seem to express a similar deferential approach to compulsory purchase for land assembly. See, e.g., R. (on the application of Hall) v. First Sec'y of State, [2006] EWHC (Admin) 2393, [30], [34]-[35], [42] (upholding compulsory land purchase order to secure completion of public park by British Airways (BA) and rejecting landowner contention that order had collateral purpose, in that BA sought to escape expensive option agreement previously signed with landowner and instead acquire land more cheaply), aff'd, [2007] EWCA (Civ) 612.
99. For the warped history of the Canary Wharf project, see David L. A. Gordon, The Resurrection of Canary Wharf, 2 Plan. Theory & Prac. 149, 150-61 (2001).
100. See David Adams et al., Land Policy and Urban Renaissance: The Impact of Ownership Constraints in Four British Cities, 3 Plan. Theory & Prac. 195, 210 (2002).
101. Randy Gragg, London's Large-scale Regeneration Projects Offer Community Benefits, Land Lines, Oct. 2006, at 2, 5.
102. In another recent case, Pascoe v. First Secretary of State, the court held, obiter, that the proportionality requirement developed by the European Court of Human Rights and by English courts according to the European Convention for the Protection of Human Rights and Fundamental Freedoms 1950, and the Human Rights Act 1998, respectively, does not in itself mandate a government to employ the "less intrusive means" for achieving urban regeneration, even if such means are practical but may adversely affect the implementation of the regeneration project in the public interest. [2006] EWHC (Admin) 2356, 4 All E.R. 1240, 1259-67.
103. Some scholars argue that the early 1970s saw an attempt to imbue the American government, in effect the "crown," with all development rights, in an attempt to copy aspects of the British system. See Gideon Kanner, Making Laws and Sausages: A Quarter-Century Retrospective on Penn Central Transportation Co. v. City of New York, 13 Wm. & Mary Bill Rts. J. 679, 704-06 (2005).
104. Owen Connellan, Land Value Taxation in Britain: Experience and Opportunities 86 (2004).
105. Kate Barker, Review of Housing Supply - Delivering Stability: Securing Our Future Housing Needs, Final Report - Recommendations 65-68 (2004), available at http://www.hm-treasury.gov.uk/consultations_and_legislation/barker/ consult_barker_index.cfm (on file with the Columbia Law Review).
106. Id. at 65-66.
107. Id. at 65-67, 84-87.
108. HM Treasury, Planning-Gain Supplement: A Consultation 5-6 (2005), available at http://www.hm-treasury.gov.uk/media/D/5/pbr05_planninggain_449.pdf (on file with the Columbia Law Review).
109. Id. at 10.
110. HM Treasury, Planning-Gain Supplement: A Summary of Consultation Responses 2 (2006), available at http://www.hm-treasury.gov.uk/media/8/4/ pbr06_pgs_summaryofresponses_220.pdf (on file with the Columbia Law Review) (highlighting shareholder concerns about valuation process, mechanisms to return PGS funds to local communities, transitional arrangements, and risks of reduced incentives for certain development).
111. HM Treasury, Pre-Budget Report 2006: Investing in Britain's potential: Building Our Long-Term Future 69-71 (2006), at http://www.hm-treasury.gov.uk/ pre_budget_report/prebud_pbr06/report/prebud_pbr06_repindex.cfm (on file with the Columbia Law Review).
112. See Dep't for Cmtys. & Local Gov't, Changes to Planning Obligations: A Planning-Gain Supplement Consultation 10-21 (2006), available at http://www.communities.gov.uk/documents/planningandbuilding/pdf/152900 (on file with the Columbia Law Review);
113. HM Revenue & Customs, Paying PGS: A Planning-Gain Supplement Technical Consultation 7 (2006), available at http://www.hmrc.gov.uk/ consultations/paying-pgs.pdf (on file with the Columbia Law Review);
114. HM Revenue & Customs, Valuing Planning Gain: A Planning-Gain Supplement Consultation 3 (2006), available at http://www.hmrc.gov.uk/ consultations/value-planning-gain.pdf (on file with the Columbia Law Review) [hereinafter HM Revenue & Customs, Valuing Planning Gain].
115. HM Revenue & Customs, Valuing Planning Gain, supra note 96, at 3.
116. Connellan, supra note 88, at 79-90.
117. See supra notes 3-7 and accompanying text.
118. See generally Land Readjustment: A Different Approach to Financing Urbanization (William A. Doebele ed., 1982) (discussing land readjustment generally and reviewing its implementation in practice).
119. Rainer Müller-Jökel, Land Readjustment - A Win-Win Strategy for Sustainable Urban Development 1 (2004), available at http://www.fig.net/pub/ athens/papers/ts14/TS14_3_MullerJoke1.pdf (on file with the Columbia Law Review) (explaining that "municipalities get the areas needed for public use . . . [while] net building land will be redistributed to the previous landowners").
120. Id. at 3-5 (explaining that in "projects where the criteria of redistribution by size is chosen up to 30% of the private old plots can be taken for public use without paying any monetary compensation"); see also Benjamin Davy, Mandatory Happiness? Land Readjustment and Property in Germany, in Analyzing Land Readjustment: Economics, Law, and Collective Action 37, 46 (Yu-Hung Hong & Barrie Needham eds., 2007) [hereinafter Analyzing Land Readjustment] (explaining that "readjustment gain can be captured by the municipality . . . as a deduction of up to 30 percent of the readjusted land").
121. See Yu-Hung Hong & Barrie Needham, Preface to Analyzing Land Readjustment, supra note 102, at xv-xvi.
122. William A. Doebele, Introductory Remarks at the Lincoln Institute of Land Policy Workshop, Tools for Land Management and Development: Land Readjustment 1-2 (Mar. 21-22, 2002) (draft available at http://www.lincolninst.edu/pubs/dl/ 636_doebele.pdf, on file with the Columbia Law Review).
123. André Sorensen, Consensus, Persuasion, and Opposition: Organizing Land Readjustment in Japan, in Analyzing Land Readjustment, supra note 102, at 89, 91-96.
124. Id. at 108-11.
125. See, e.g., Fla. Legislative Comm. on Intergovernmental Relations, Platted Lands 36 (2003), available at http://www.floridalcir.gov/UserContent/docs/File/ reports/plattedlands03.pdf (on file with the Columbia Law Review);
126. Luciano Minerbu, Efforts Toward Land Readjustment Legislation in Hawai'i, Presentation at the Lincoln Institute of Land Policy Workshop, Tools for Land Management and Development: Land Readjustment 8 (Mar. 21-22, 2002), available at http://www.lincolninst.edu/pubs/dl/642_minerbi.pdf (on file with the Columbia Law Review).
127. See Lynne B. Sagalyn, Land Assembly, Land Readjustment, and
128. Michael M. Schultz & Frank Schnidman, The Potential Application of Land Readjustment in the United States, 22 Urb. Law. 197, 237-43 (1990) (discussing potential opportunities and benefits of implementing land readjustment).
129. William Shakespeare, Hamlet act 3, sc. 1, lines 81-82 (Burton Raffell ed., Yale Univ. Press 2003) (n.d.).
130. In an unpublished paper, Michael Heller and Rick Hills propose establishing a Land Assembly District (IAD), which would have the power by a majority vote to approve or disapprove the sale of the district's area to a developer or municipality seeking to consolidate the land into a single parcel. The LAD would also grant landowners a right to opt out and receive current "fair market value" compensation. Whereas the LAD mechanism differs from our proposal in numerous aspects, it shares the potential for overcoming the veto power problem resulting from over-fragmentation. The divide between the two proposals stems in part from differing views about the tradeoff between the potential benefits of a decentralized market for development compounds vis-à-vis the transaction and coordination costs of setting up and operating a multitude of LADs. Michael A. Heller & Roderick M. Hills, Jr., LADs and the Art of Land Assembly 20-28 (Oct. 24, 2006) (unpublished manuscript, on file with the Columbia Law Review).
131. Merrill, supra note 19, at 90-93 (citations omitted).
132. For a critical review of similar suggestions, see Garnett, Neglected Political Economy, supra note 39, at 146-48.
133. Saul Levmore, Self-Assessed Valuation Systems for Tort and Other Law, 68 Va. L. Rev. 771 (1982).
134. Id. at 778-79.
135. Fennell, supra note 49, at 995-96.
136. Id. at 997-98.
137. Abraham Bell & Gideon Parchomovsky, Taking Compensation Private, 59 Stan. L. Rev. 871, 890-900 (2007).
138. Id. at 892-95.
139. For example, to prevent governmental abuse of their model, Bell and Parchomovsky suggest that the additional increment of property tax based on the self-assessment in case of governmental withdrawal from the plan can be donated to a charity of the owner's choice, rather than paid to the government. Id. at 900-01. Such an option would necessitate, however, initiating a new governmental monitoring mechanism to prevent "self-donation" or other acts of collusion.
140. This type of discrimination, resulting also from differences in political influence, is already present in many current eminent domain cases. In a study of governmental land acquisitions in Chicago from 1962 to 1970, Patricia Munch found that owners of low-value lands were systematically undercompensated, whereas owners of high-value properties were overcompensated compared to assessed market values. Patricia Munch, An Economic Analysis of Eminent Domain, 84 J. Pol. Econ. 473, 485-88 (1976); see also Garnett, Neglected Political Economy, supra note 39, at 115-21.
141. See, e.g., James E. Krier & Christopher Serkin, Public Ruses, 2004 Mich. St. L. Rev. 859, 865-73 (suggesting adjustment of "fair market value" standard upwards to make up for absence of implicit in-kind benefits for landowners, or basing compensation on restitutionary principles derived from expected land value to the developer, as estimated ex ante by court);
142. Paul Niemann & Perry Shapiro, Efficiency and Fairness: Compensation for Takings 16-17 (Dec. 5, 2005) (unpublished manuscript, on file with the Columbia Law Review) (calling for compensation to landowners based on post-project values of non-taken lands in surrounding community).
143. See supra notes 54-55 and accompanying text. More generally, Bruno Frey and Matthias Benz argue that people's well-being is affected by whether they can act independently, which is more highly valued, or are subject to decisions made by others - what the authors dub "market" versus "hierarchy" decisionmaking procedures. See Bruno S. Frey & Matthias Benz, Being Independent Is a Great Thing: Subjective Evaluations of Self-Employment and Hierarchy, 74 Economica (forthcoming 2007) (manuscript at 2, on file with the Columbia Law Review), available at http://papers.ssrn. com/sol3/papers.cfm?abstract_id=359822.
144. Cif. Michael A. Heller & James E. Krier, Deterrence and Distribution in the Law of Takings, 112 Harv. L. Rev. 997, 1002 (1999) (offering four-quadrant taxonomy, with yes/no taking on one axis and yes/no compensation on the second axis, based on uncoupling of normative principles of deterrence and distribution).
145. R.H. Coase, The Nature of the Firm, 4 Economica 386 (1937).
146. Id. at 388 (viewing firms as "islands of conscious power in this ocean of unconscious co-operation like lumps of butter coagulating in a pail of buttermilk" (internal citation omitted) (quoting D.H. Robertson & Stanley Dennison, Control of Industry 85 (1923))).
147. Oliver E. Williamson, The Mechanisms of Governance 378 (1996);
148. see also Oliver E. Williamson, The Economic Institutions of Capitalism 47 (1985) ("By opportunism I mean self-interest seeking with guile[, which] includes but is scarcely limited to more blatant forms, such as lying, stealing, and cheating.");
149. Oliver E. Williamson, Markets and Hierarchies 255 (1975) ("[Opportunism] is self-interest seeking with guile.").
150. See Margaret M. Blair & Lynn A. Stout, A Team Production Theory of Corporate Law, 85 Va. L. Rev. 247, 250-51 (1999) (arguing that firms may provide internal governance structures, dubbed "mediating hierarch[ies]," allowing individuals to profit from team production);
151. Henry Hansmann & Reinier Kraakman, The Essential Role of Organizational Law, 110 Yale L.J. 387, 390 (2000) (arguing that essential role of organizational law is to partition and shield entity assets from assets of managers and investors to protect them from creditor claims while retaining creditor financing);
152. Edward B. Rock & Michael L. Wachter, Islands of Conscious Power: Law, Norms, and the Self-Governing Corporation, 149 U. Pa. L. Rev. 1619, 1619 (2001) (arguing that "raison d'être of firms is to replace legal/contractual governance of relations with [nonlegal norms]");
153. see also D. Gordon Smith, The Critical Resource Theory of Fiduciary Duty, 55 Vand. L. Rev. 1399, 1400 (2002) (trying "to craft a unified theory of fiduciary duty");
154. Robert B. Thompson & D. Gordon Smith, Toward a New Theory of the Shareholder Role: "Sacred Space" in Corporate Takeovers, 80 Tex. L. Rev. 261, 261 (2001) (advocating "necessary 'sacred space' for shareholder self-help, free of directorial or judicial intrusion").
155. Kelo v. City of New London, 545 U.S. 469, 476 n.4 (2005).
156. We use "securities" and "shares" interchangeably throughout this Essay.
157. Not coincidentally, dispersed shareholders of a public corporation who face a hostile takeover bid may similarly benefit from legal mechanisms that reconstruct the position of a sole owner of the corporation. See generally Lucian Arye Bebchuk, The Sole Owner Standard for Takeover Policy, 17 J. Legal Stud. 197 (1988) (defending efficiency of sole owner theory and suggesting laws for its implementation and governance).
158. For a lucid discussion of these advantages of the corporate form, see Robert C. Clark, Corporate Law 1-24 (1986).
159. Michael C. Jensen & William H. Meckling, Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, 3 J. Fin. Econ. 305, 309 (1976).
160. See infra Part IV.D.2 for a detailed discussion.
161. See infra Part IV.D.3.
162. Stated otherwise, we assume that the efficient capital market hypothesis will generally hold for SPDC securities - that is, that market professionals will impound all publicly available information about the company into the price of its securities. See generally Ronald J. Gilson & Reinier Kraakman, The Mechanisms of Market Efficiency, 70 Va. L. Rev. 549 (1984) (explaining efficient capital market hypothesis and factors that create and limit capital market efficiency);
163. Ronald J. Gilson & Reinier Kraakman, The Mechanisms of Market Efficiency Twenty Years Later: The Hindsight Bias, 28 J. Corp. L. 715 (2003) (revisiting earlier framework in light of behavioral finance theory). This assumption became a legal presumption following the Supreme Court's seminal decision in Basic Inc. v. Levinson, 485 U.S. 224, 247 (1988) ("Because most publicly available information is reflected in market price, an investor's reliance on any public material misrepresentations, therefore, may be presumed for purposes of a Rule 10b-5 action.").
164. See Steven L. Schwarcz, The Alchemy of Asset Securitization, 1 Stan. J.L. Bus. & Fin. 133, 134-44 (1994) [hereinafter Schwarcz, Alchemy] (describing how securitization works and how companies benefit).
165. See generally Steven L. Schwarcz, Structured Finance, A Guide to the Principles of Asset Securitization (3d ed. 2002) (providing practical guide to structured finance and securitization).
166. See, e.g., Clean Air Act of 1990, Pub. L. No. 101-549, 104 Stat. 2399, (codified as amended in scattered sections of 42 U.S.C.) (permitting persons to transfer production allowances).
167. For the relative advantages (and disadvantages) of such schemes over traditional command-and-control regulation and other types of environmental regulation, see Daniel H. Cole, Pollution and Property: Comparing Ownership Institutions for Environmental Protection 45-84 (2002) (discussing mixed property/regulatory regimes for environmental protection and their limits);
168. Daniel C. Esty, Toward Optimal Environmental Governance, 74 N.Y.U. L. Rev. 1495, 1503-08 (1999) (noting market failures in enhanced market for environmental property rights, even in countries with well-defined markets and rules of law);
169. Carol M. Rose, Common Property, Regulatory Property, and Environmental Protection: Comparing Community-Based Management to Tradable Environmental Allowances, in The Drama of the Commons 233, 250-53 (Elinor Ostrom et al. eds., 2002) (contrasting community property approach to environmental regulation with market in tradable environmental rights).
170. For the nonlinear relationship between land price and parcel size in cases of land assembly, see Peter F. Colwell & Henry J. Munneke, Land Prices and Land Assembly in CBD, 18 J. Real Est. Fin. & Econ. 163, 164-65 (1999).
171. See supra notes 69-72 and accompanying text.
172. See, e.g., Henry Hansmann & Reinier Kraakman, Agency Problems and Legal Strategies, in Reinier Kraakman et al., The Anatomy of Corporate Law 21, 30-31 (2004) (discussing default and mandatory rules in various types of business organizations).
173. E.g., Clark, supra note 131, at 17 (noting that most states now allow corporate charters without limitation of powers or purposes).
174. See generally Symposium, Contractual Freedom in Corporate Law, 89 Colum. L. Rev. 1395 (1989) (discussing nexus of contracts theory of corporation and limits on this contract theory).
175. Consequently, the common metaphor of the corporation as a nexus of contracts may need to be replaced with a metaphor of a nexus of power relations. Amir N. Licht, The Maximands of Corporate Governance: A Theory of Values and Cognitive Style, 29 Del. J. Corp. L. 649, 653 (2004).
176. For a classic account, see Adolph A. Berle, Jr. & Gardiner C. Means, The Modern Corporation and Private Property 70-90 (1933) (discussing company control scenarios ranging from majority shareholder to management).
177. See, e.g., NYSE Euronext, Listed Company Manual § 303A(1), available at http://www.nyse.com/lcm/lcm_subsection.html (last modified Nov. 4, 2003) (on file with the Columbia Law Review) ("Listed companies must have a majority of independent directors.").
178. In the Atlantic Yards project mentioned above, developer Bruce Ratner had actually gained rights in a majority of the land intended for the project. See supra note 45 and accompanying text.
179. For Delaware law on this subject, see Del. Code Ann. tit. 8, § 144(a) (2006); Fliegler v. Lawrence, 361 A.2d 218, 221 (Del. 1976) (interpreting § 144(a) as requiring approval of affiliated party transactions by disinterested directors unless transaction meets exacting test of "objective fairness"). The Model Business Corporation Act sets forth a more elaborate regime that is also based on full disclosure and disinterested approval. Model Bus. Corp. Act § 8.31 (2001).
180. There is no good reason to allow the SPDC to engage in any other business, which, in case of failure, will cause shareholders to lose the value of their land. Condemnees who wish to invest in business - including in the development project itself - will be free to do so outside of the SPDC.
181. Under Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173, 184 (Del. 1985), when the board determines that the company faces an inevitable change of control, directors have a duty to obtain the best price reasonably available for the shareholders, including by auctioning the company off. By analogy, directors of the SPDC, which has a limited life span, will have a similar duty.
182. For more details, see Schwarcz, Alchemy, supra note 136, at 138.
183. See supra Part IV.D.1.
184. Having the government as a dominant shareholder in the SPDC, government officials in its management, or both, raises an additional set of prickly issues. Until recently, the received wisdom was that governments should stay out of business. It was assumed, among other things, that government officials do not face the right incentives for maximizing corporate value and that such corporate positions may be conducive to corruption. Privatization and outsourcing thus became standard policy recommendations. See, e.g., Oliver Hart, Andrei Shleifer & Robert W. Vishny, The Proper Scope of Government: Theory and an Application to Prisons, 112 Q.J. Econ. 1127, 1159 (1997) (finding privatization provides lower cost prison service and greater quality innovation);
185. William L. Megginson & Jeffry M. Netter, From State to Market: A Survey of Empirical Studies on Privatization, 39 J. Econ. Lit. 321, 380-81 (2001) (finding privatized firms more profitable and efficient than state owned enterprises);
186. Andrei Shleifer, State Versus Private Ownership, J. Econ. Persp., Fall 1998, at 133, 135-36 (arguing that recent trend is moving away from government control toward privatization, which is more efficient and effective). More recently, however, some are reassessing the desirability of delegating public functions to private parties and exploring new models of public-private partnerships that mitigate some of the risks of purely private contracting (e.g., information incompleteness and ambiguity).
187. For economic analyses, see, for example, Timothy Besley & Maitreesh Ghatak, Competition and Incentives with Motivated Agents, 95 Am. Econ. Rev. 616, 618-25 (2005) (exploring public-private collaboration in mission oriented projects);
188. Oliver Hart, Incomplete Contracts and Public Ownership: Remarks, and an Application to Public-Private Partnerships, 113 Econ. J. C69, C75 (2003) (questioning conventional thinking that "the private sector is a cheaper source of financing or insurance than the public sector").
189. For policy analyses, see, for example, Stephen H. Linder and Pauline Vaillancourt Rosenau, Mapping the Terrain of the Public-Private Policy Partnership, in Public-Private Policy Partnerships 1, 2-5 (Pauline Vaillancourt Rosenau ed., 2000) (discussing evolution of contemporary public-private partnerships and logic underlying these developments);
190. Gillian E. Metzger, Privatization as Delegation, 103 Colum. L. Rev. 1367, 1377-94 (2003) (analyzing existing privatization schemes in context of health care, welfare programs, public education, and prisons).
191. Arguably, condemnees who chose to receive SPDC shares based on this criterion may not raise an objection on this ground because their choice was not coerced. We nevertheless believe that a compensation mechanism that on its face may appear unjust will not be welcomed and will not be used.
192. Securities Act of 1933 § 5, 15 U.S.C. § 77e (2000).
193. Section 4(2) of the Securities Act of 1933, 15 U.S.C. § 77d(2), provides that the registration requirements in section 5 of the Act shall not apply to transactions by an issuer not involving any public offering. Courts have sidestepped the question of what is the numerical threshold beyond which a group of offerees should be deemed "public," leading the Securities and Exchange Commission (SEC) to promulgate a safe harbor, bright-line rule in Rule 505 of Regulation D under the Securities Act, 17 C.F.R. § 230.505 (2007). The exemption under Rule 505 applies to offers and sales to no more than thirty-five purchasers (rather than offerees), thus suggesting a yardstick for the definition of "public." The exemption under Rule 505 is contingent on additional conditions, however.
194. See SEC v. Ralston Purina Co., 346 U.S. 119, 125 (1953) ("[T]he applicability of [§ 4(2)] should turn on whether the particular class of persons affected need the protection of the Act. An offering to those who are shown to be able to fend for themselves is a transaction not involving any public offering."); Doran v. Petroleum Mgmt. Corp., 545 F.2d 893, 900 (5th Cir. 1977) (citing Ralston). To enjoy the § 4(2) exemption, one must show that "all offerees were actually furnished the information a registration statement would have provided." Doran, 545 F.2d at 904.
195. See supra note 156. To be excluded from those investors counting towards the thirty-five person maximum, one must satisfy certain - largely financial - requirements to qualify as an "accredited investor" under Rule 501(a) of Regulation D. 17 C.F.R. § 230.501(a).
196. The exemption under Rule 147 requires that all offerees and purchasers be residents of the state in which the issuer is a resident and doing business. 17 C.F.R. § 230.147. Rule 147 was enacted under section 3(a) (11) of the Securities Act of 1933, 15 U.S.C. § 77c(a)(11). While the latter condition likely will hold for the SPDC, some landowners may be out-of-state residents.
197. It may be desirable to promulgate special regulations on such offers with certain exemptions from full-fledged prospectuses. Intended to allow nonpublic corporations to implement employee stock ownership plans (ESOPs), Rule 701 under the Act, 17 C.F.R. § 230.701, exempts from registration the offering and selling of securities to employees and consultants under compensatory benefit plans. This exemption is limited, however, to issuances over a twelve month period of no more than $1 million, 15% of the issuer's total assets, or 15%) of the outstanding amount of the securities being offered - whichever is greatest. This ceiling ensures that Rule 701 issuances are not used for raising capital from employees. This rationale does not hold in the case of SPDCs.
198. 11 U.S.C. §§ 1101-1174 (2000).
199. See generally Douglas G. Baird & Edward R. Morrison, Serial Entrepreneurs and Small Business Bankruptcies, 105 Colum. L. Rev. 2310 (2005) (finding that large-scale reorganizations are exception; vast majority of Chapter 11 cases deal with small business entrepreneurs trying to extend lives of their businesses).
200. For a basic overview, see Lucian Arye Bebchuk, Chapter 11, in 1 The New Palgrave Dictionary of Economics and the Law 219 (Peter Newman ed., 1998) (discussing objectives of Chapter 11 reorganization, flaws in current bargain based approach, and alternative approaches to corporate reorganization).
201. See, e.g., Douglas G. Baird & Donald S. Bernstein, Absolute Priority, Valuation Uncertainty, and the Reorganization Bargain, 115 Yale L.J. 1930, 1935 (2006) (arguing that uncertainties in valuation of reorganized corporations drive bargaining between creditor classes).
202. This proposal arguably forces junior claimants to "put their money where their mouths are" since a junior claimant could buy out all the claims superior to her claim, on the assumption that the reorganized firm would be worth more than all these claims (on a pro rata basis). A junior claimant who didn't exercise this option could not complain that she was short changed. See Lucian Arye Bebchuk, A New Approach to Corporate Reorganizations, 101 Harv. L. Rev. 775, 793-94 (1988) (describing how option-based scheme would avoid both strategic and genuine disagreements over value);
203. Lucian Arye Bebchuk & Jesse M. Fried, A New Approach to Valuing Secured Claims in Bankruptcy, 114 Harv. L. Rev. 2386, 2408-09 (2001) (describing option-based scheme and need for valuation of collateral);
204. Lucian Arye Bebchuk, Using Options to Divide Value in Corporate Bankruptcy, 44 Eur. Econ. Rev. 829, 833-38 (2000) (presenting formal version of option-based approach);
205. see also Barry E. Adler & Ian Ayres, A Dilution Mechanism for Valuing Corporations in Bankruptcy, 111 Yale L.J. 83, 85 (2001) (proposing alternative options-based mechanism for bankruptcy reorganizations).
206. Philippe Aghion et al., The Economics of Bankruptcy Reform, 8 J.L. Econ. & Org. 523, 535, 539 (1992).
207. See Oliver Hart et al., A New Bankruptcy Procedure That Uses Multiple Auctions, 41 Eur. Econ. Rev. 461, 471-72 (1997) (describing how public auctions would allow liquidity constrained creditors to benefit from their options).
208. Cf. Adler & Ayres, supra note 165, at 90 (noting that "even unbiased judges make mistakes that a market process would not permit").