The hidden function of takings compensation

Virginia Law Review

Volumn 96, Issue 7, 2010, Pages 1673-1725

  Bell, Abraham ^a,b   Parchomovsky, Gideon ^b,c  

^a UNIVERSITY OF SAN DIEGO   (United States)

^b BAR ILAN UNIVERSITY   (Israel)

^c UNIVERSITY OF PENNSYLVANIA   (United States)

Author keywords

[No Author keywords available]

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EID: 78650565673     PISSN: 00426601     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (144)

1. William Blackstone, Commentaries on the Laws of England 2 (Univ. of Chi. Press 1979) (1766).
2. There have been many notable works in the vast literature on takings. See, e.g., Richard A. Epstein, Takings: Private Property and the Power of Eminent Domain (1985) (examining the Takings Clause in a range of contexts and in connection with the role of the individual and the state);
3. Frank I. Michelman, Property, Utility, and Fairness: Comments on the Ethical Foundations of "Just Compensation" Law, 80 Harv. L. Rev. 1165 (1967) (analyzing the justifications for compensation in takings cases and proposing a fairness test).
4. See, e.g., Nicole Stelle Garnett, The Neglected Political Economy of Eminent Domain, 105 Mich. L. Rev. 101, 138-39 (2006).
5. See, e.g., Abraham Bell & Gideon Parchomovsky, Taking Compensation Private, 59 Stan. L. Rev. 871 (2007) (offering a mechanism by which property owners could be fully compensated);
6. James Geoffrey Durham, Efficient Just Compensation as a Limit on Eminent Domain, 69 Minn. L. Rev. 1277, 1279 (1985) (arguing for limits on the government's power of eminent domain and government reimbursement for all large, concrete, and compensable costs resulting from takings);
7. Daryl J. Levinson, Making Government Pay: Markets, Politics, and the Allocation of Constitutional Costs, 67 U. Chi. L. Rev. 345 (2000) (arguing that compensation remedies do not adequately deter constitutional violations by the government and other justifications for compensation are inadequate);
8. Lunney G.S. Compensation for takings: How much is just? Cath. U. L. Rev. 1993 42 721.
9. Thomas J. Miceli, Compensation for the Taking of Land Under Eminent Domain, 147 J. Institutional & Theoretical Econ. 354 (1991) (proposing an economic model to address the moral hazard that occurs when landowners believe they will be undercompensated in a government takings and thus overinvest in their land);
10. Christopher Serkin, The Meaning of Value: Assessing Just Compensation for Regulatory Takings, 99 Nw. U. L. Rev. 677, 680-81 (2005) (arguing the level of proper compensation is directly related to how effectively the damages awards can fulfill the goals of the Takings Clause).
11. Cf. Michelman, supra note 2, at 1171-72, 1235 (arguing that the correct test for compensation is whether it is fair).
12. Cf. Eduardo Moisés Penalver, Regulatory Taxings, 104 Colum. L. Rev. 2182, 2251 (2004) (arguing against compensation for takings that are indistinguishable from permissible taxes and suggesting courts should take harm into account when determining whether and how much compensation should be paid).
13. See Bell & Parchomovsky, supra note 4, at 885-90;
14. Lee Anne Fennell, Taking Eminent Domain Apart, 2004 Mich. St. L. Rev. 957, 958-59 (2004);
15. Garnett, supra note 3, at 106-10;
16. James E. Krier & Christopher Serkin, Public Ruses, 2004 Mich. St. L. Rev. 859, 866 (2004);
17. Thomas W. Merrill, The Economics of Public Use, 72 Cornell L. Rev. 61, 82-83 (1986).
18. See Coniston Corp. v. Vill. of Hoffman Estates, 844 F.2d 461,464 (7th Cir. 1988).
19. 364 U.S. 40 (1960).
20. Id. at 49.
21. Michelman, supra note 2.
22. Id. at 1221-22.
23. 438 U.S. 104 (1978).
24. Steven J. Eagle, The Rise and Rise of "Investment-Backed Expectations," 32 Urb. Law. 437, 437-38 (2000) ("The takings-determination phase of investment-backed expectations spans the period from its origination in a seminal 1967 article by Harvard law professor Frank Michelman, through its incorporation into constitutional jurisprudence by Justice Brennan in Penn Central Transportation Co. v. City of New York....") (footnotes omitted).
25. Michelman, supra note 2, at 1214-24.
26. Id.
27. Id. at 1221.
28. Id. at 1223.
29. Id.
30. Subsequent commentators have interpreted Michelman's analysis as suggesting that government pay compensation when demoralization costs exceed settlement costs but not otherwise. Interestingly, this does not appear explicitly in Michelman's article. See David A. Dana & Thomas W. Merrill, Property Takings 35-36 (2002).
31. The debate is generally phrased as identifying the difference between a government action that constitutes a taking - either a regulatory taking or a physical taking - and one that does not constitute a taking. For a collection of some of the many articles criticizing the Supreme Court's regulatory takings jurisprudence, see Abraham Bell & Gideon Parchomovsky, Takings Reassessed, 87 Va. L. Rev. 277, 284-89 (2001).
32. Dana & Merrill, supra note 19, at 33-34.
33. Nestor M. Davidson, The Problem of Equality in Takings, 102 Nw. U. L. Rev. 1, 3-4 (2008).
34. Saul Levmore, Just Compensation and Just Politics, 22 Conn. L. Rev. 285, 292-93 (1990).
35. Id. at 306-07, 310-11.
36. Id. at 306-07.
37. Id. at 309.
38. Id. at 313.
39. Id.
40. See generally Dennis C Mueller, Public Choice III (2003).
41. See Bell & Parchomovsky, supra note 4, at 881-84;
42. Lawrence Blume & Daniel L. Rubinfeld, Compensation for Takings: An Economic Analysis, 72 Cal. L. Rev. 569, 620-22 (1984);
43. Thomas W. Merrill, Incomplete Compensation for Takings, 11 N.Y.U. Envtl. L.J. 110, 131-32 (2002);
44. see also William A. Fischel, Takings and Public Choice: The Persuasion of Price, in 2 The Encyclopedia of Public Choice 549 (Charles Rowley & Friedrich Schneider eds., 2003) (discussing how the government determines just compensation).
45. Mancur Olson, The Logic of Collective Action: Public Goods and the Theory of Groups (5th ed. 1975).
46. See id. at 3.
47. See Epstein, supra note 2.
48. Epstein's work is generally seen as based upon a Lockean conception of property and the state. See, e.g., Eric R. Claeys, Takings: An Appreciative Retrospective, 15 Wm. & Mary BiU Rts. J. 439, 443 (2006);
49. William W. Fisher III, The Significance of Public Perceptions of the Takings Doctrine, 88 Colum. L. Rev. 1774, 1782 (1988).
50. Thomas W. Merrill, Rent Seeking and the Compensation Principle, 80 Nw. U. L. Rev. 1561, 1562 (1986) (book review). We discuss the meaning of rent-seeking in Subsection I.B.4, infra.
51. See generally Dana & Merrill, supra note 19, at 41-46.
52. See United States v. Miller, 317 U.S. 369, 374 (1943) ("In an effort... to find some practical standard, the courts early adopted, and have retained, the concept of market value.");
53. Coniston Corp. v. Vill. of Hoffman Estates, 844 F.2d 461, 464 (7th Cir. 1988) ('"[J]ust compensation' has been held to be satisfied by payment of market value.").
54. See Bell & Parchomovsky, supra note 4, at 885-90 (finding the subjective value may exceed market value due to surplus subjective value, goodwill, community premiums, and transaction costs);
55. see also Krier & Serkin, supra note 7, at 866;
56. Symposium, The Death of Poletown: the Future of Eminent Domain and Urban Development After County of Wayne v. Hathcock, 2004 Mich. St. L. Rev. 837 (2004).
57. For further discussion of the importance of compensation at subjective value, see Bell & Parchomovsky, supra note 4, at 872-75.
58. For a discussion of the many ways in which the government voluntarily grants benefits to individuals, see Abraham Bell & Gideon Parchomovsky, Givings, 111 Yale L.J. 547 (2001).
59. Farber's article does not rely solely on the public choice or rent-seeking account presented here; indeed, Färber acknowledged the plausibility of other economic explanations for the compensation requirement. Daniel A. Färber, Economic Analysis and Just Compensation, 12 Int'l Rev. L. & Econ. 125 (1992).
60. Id. at 131-32.
61. Id. at 130-31.
62. Id. at 125 ("Public choice theory suggests that legislators normally offer compensation to landowners whose property is taken for a project, because they would form a powerful lobby against the project if not 'bought off.'").
63. Timothy J. Brennan & James Boyd, Political Economy and the Efficiency of Compensation for Takings, 24 Contemp. Econ. Pol'y 188, 190-95 (2006).
64. Id. at 191-93.
65. Id. at 195. For discussions of the problem that compensation may create "moral hazard" and incentivize over-development,
66. see Abraham Bell, Not Just Compensation, 13 J. Contemp. Legal Issues 29, 35 (2003);
67. Paul Burrows, Compensation for Compulsory Acquisition, 67 Land Econ. 49 (1991);
68. Thomas J. Miceli & Kathleen Segerson, Regulatory Takings: When Should Compensation Be Paid?, 23 J. Legal Stud. 749, 750 (1994).
69. See Brennan & Boyd, supra note 45, at 196, 200.
70. See id. at 190.
71. See id. at 191, 197.
72. Paul Pecorino, Optimal Compensation for Regulatory Takings (Univ. of Ala. Econ., Fin. & Legal Studies Working Paper Series, Working Paper No. 09-04-01, 2009), available at http://papers.ssrn.com/sol3/papers.cfm?abstract- id=1392927. 52
73. See id. at 4, 6-7.
74. See id. at 1, 4.
75. Id. at 1.
76. Id.
77. Epstein, supra note 2.
78. Id. at 15.
79. Id. at 12-13, 36.
80. See, e.g., Levinson, supra note 4, at 396-400 (attacking Epstein's "libertarianism");
81. Thomas O. McGarity, The Expanded Debate over the Future of the Regulatory State, 63 U. Chi. L. Rev. 1463, 1484-91 (1996) (describing Epstein as a "radical anti-interventionist");
82. Mark Kelman, Taking Takings Seriously: An Essay for Centrists, 74 Cal. L. Rev. 1829,1829 (1986) (book review) ("Takings is a very poorly reasoned book; Epstein makes no serious substantive arguments for the positions he advances.");
83. Joseph L. Sax, Takings, 53 U. Chi. L. Rev. 279, 279-80 (1986) (book review) (denouncing Takings as a "patchwork" that is "ahistorical," is "not... developed," and is not a "serious work of scholarship").
84. Epstein, supra note 2, at 184.
85. Id. at 199.
86. See generally Mueller, supra note 29, at 333-35.
87. See Robert D. Tollison, Rent-Seeking: A Survey, 35 Kyklos 575, 575-79 (1982).
88. See Merrill, supra note 30, at 1585-87.
89. See id. at 1577-78.
90. Id. at 1578.
91. See infra Part II.
92. Benjamin E. Hermalin, An Economic Analysis of Takings, 11 J.L. Econ. & Org. 64, 65-66 (1995).
93. See Gordon Tullock, The Welfare Costs of Tariffs, Monopolies, and Theft, 5 West. Econ. J. 224 (1967) (using economic modeling to show that the social costs of tariffs and monopolies are larger than the literature indicates).
94. E.g., James M. Buchanan, Rent Seeking and Profit Seeking, in Toward a Theory of the Rent-Seeking Society 3, 3-15 (James M. Buchanan et al. eds., 1980) (shifting the focus of the study of rent seeking to nonmarket interactions and institutions as part of public choice theory).
95. E.g., Sam Peltzman, Toward a More General Theory of Regulation, 19 J.L. & Econ. 211, 212-13 (1976) (developing a formal model of the "optimum size of effective political coalitions set within the framework of a general model of the political process").
96. E.g., Gary S. Becker, A Theory of Competition Among Pressure Groups for Political Influence, 98 Q.J. Econ. 371 (1983) (presenting "a theory of competition among pressure groups for political influence").
97. E.g., Anne O. Krueger, The Political Economy of the Rent-Seeking Society, 64 Am. Econ. Rev. 291 (1974) (developing a model of competitive rent seeking for when rents originate from quantitative restrictions upon international trade).
98. Fred S. McChesney, Money for Nothing: Politicians, Rent Extraction, and Political Extortion (1997) [hereinafter McChesney, Money for Nothing];
99. Fred S. McChesney, Rent Extraction and Rent Creation in the Economic Theory of Regulation, 16 J. Legal Stud. 101 (1987).
100. 75See Tullock, supra note 69, at 228.
101. McChesney, Money for Nothing, supra note 74, at 55-66.
102. See Peltzman, supra note 71, at 214.
103. See James M. Buchanan & Gordon Tullock, The Calculus of Consent 283-95 (1962).
104. See supra Section IIA.
105. 545 U.S. 469 (2005) (finding that there was no basis for exempting economic development from the broad definition of "public purpose" and allowing a developer to acquire properties by eminent domain for the construction of a retail and residential complex).
106. 304 N.W.2d 455 (Mich. 1981) (holding that the city did not abuse its discretion in condemning properties in order to convey the land to a private company for the creation of an industrial site that would create jobs and promote the public welfare).
107. See Krier & Serkin, supra note 7, at 859-60. For views critical of the lax public use doctrine employed by courts in these cases to uphold the takings,
108. see Epstein, supra note 2, at 161-81;
109. Ilya Somin, Controlling the Grasping Hand: Economic Development Takings after Kelo, 15 S. Ct. Econ. Rev. 183 (2007).
110. For a general discussion of the problems of givings, see Bell & Parchomovsky, supra note 40.
111. See Philip Weinberg, Eminent Domain for Private Sports Stadiums: Fair Ball or Foul?, 35 Envtl. L. 311, 315 (2005) (explaining that the land needed for municipallyfinanced sports stadiums is often acquired through eminent domain);
112. see also Roger G. Noll & Andrew Zimbalist, "Build the Stadium-Create the Jobs!," in Sports, Jobs, and Taxes: The Economic Impact of Sports Teams and Stadiums 1, 7-8 (Roger G. Noll & Andrew Zimbalist eds., 1997) (explaining that local government often pays for acquiring the land, most of the site preparation, and some of the stadium construction costs before leasing it to a sports team).
113. Admittedly, were there absolute symmetry in transaction costs between property owners and developers, the existence of givings would eliminate the need for takings compensation. Property would be allocated optimally even without takings compensation and givings charges: any threat to take and give the property would result in an auction between equally situated owners and developers and result in a win for the superior property holder. Brennan and Boyd reached a similar result. Brennan & Boyd, supra note 45, at 191 (finding that where landowners and those in favor of land use regulations (e.g., environmentalists) have equal political influence, the social optimum is reached without a need for takings compensation). But transaction costs are almost never symmetric, and this result is not likely to ever occur in the real world.
114. See supra Subsection I.B.3.
115. See Lawrence Blume & Daniel L. Rubinfeld, Compensation for Takings: An Economic Analysis, 72 Cal. L. Rev. 569 (1984) (evaluating the arguments for and against compensation as a form of insurance against regulatory takings);
116. Lawrence Blume, Daniel L. Rubinfeld & Perry Shapiro, The Taking of Land: When Should Compensation Be Paid?, 99 Q.J. Econ. 71 (1984) (questioning whether compensation for eminent domain takings is efficient);
117. William A. Fischel & Perry Shapiro, Takings, Insurance, and Michelman: Comments on Economic Interpretations of "Just Compensation" Law, 17 J. Legal Stud. 269 (1988) (exploring noncompensation and insurance models);
118. Louis Kaplow, An Economic Analysis of Legal Transitions, 99 Harv. L. Rev. 509 (1986) (addressing the impact of transitional government policy in connection with takings and other economic reforms).
119. See, e.g., Lee Anne Fennell, Taking Eminent Domain Apart, 2004 Mich. St. L. Rev. 957, 958-59 (2004).
120. See supra Subsection I.B.4.
121. Ind. Code Ann. §32-244.5-8(2)(A) (2006).
122. Mo. Ann. Stat. §§523.039(2)-(3) (2006).
123. For further examples, see Daphna Lewinsohn-Zamir, Identifying Intense Preferences, 94 Cornell L. Rev. 1391, 1408-09 (2009).
124. United States v. 564.54 Acres of Land, 441 U.S. 506, 511 (1979);
125. see also United States v. Miller, 317 U.S. 369, 374 (1943) (explaining that, for practical reasons, "courts early adopted, and have retained, the concept of market value" in determining takings compensation).
126. Daryl J. Levinson, Framing Transactions in Constitutional Law, 111 Yale L.J. 1311 (2002).
127. Id. at 1338.
128. Id. at 1315.
129. Id. at 1315-17.
130. Id. at 1340.
131. See supra Section II.B.
132. Kaplow, supra note 87.
133. Blume, Rubinfeld & Shapiro, supra note 87.
134. See id.
135. Blume & Rubinfeld, supra note 87, at 572.
136. See, e.g., Kaplow, supra note 87, at 603.
137. William Fischel, Regulatory Takings: Law, Economics and Politics 191 (1995);
138. Fischel & Shapiro, supra note 87, at 286.
139. See supra Section II.B.
140. See supra Section II.B.
141. See infra Appendix, Proposition 3.
142. e will be zero.
143. Bell & Parchomovsky, supra note 40.
144. See id. at 615-17.