Taking compensation private

Abraham Bell*, Gideon Parchomovsky

*Corresponding author for this work

Research output: Contribution to journalReview articlepeer-review

37 Scopus citations

Abstract

In light of the expansive interpretation of the "public use" requirement, the payment of "just compensation" remains the only meaningful limit on the government's eminent domain power and, correspondingly, the only safeguard of private property owners' rights against abusive takings. Yet, the current compensation regime is suboptimal. While both efficiency and fairness require paying full compensation for seizures by eminent domain, current law limits the compensation to market value. Despite the virtual consensus about the inadequacy of market compensation, courts adhere to it for a purely practical reason: there is no way to measure the true subjective value of property to its owner. Subjective value is neither observable nor verifiable to third parties and courts cannot rely upon owners' reports of the value they attach to their properties. To date, the challenge of screening truthful from exaggerated evaluation has proven insurmountable. This Article solves the undercompensation conundrum. It offers a novel selfassessment mechanism that enables the payment of full compensation at subjective value when private property is taken by eminent domain. Under the proposed mechanism, property owners would get to set the price of the property designated for condemnation. The government could then either take the property at the designated price or abstain, leaving the property subject to two new proposed restrictions. First, for the life of the owner, the property could not be sold for less than the self-assessed price, adjusted on the basis of the local housing price index. Second, the self-assessed price - discounted to take account of the peculiarities of property tax assessments - would become the new benchmark for the owner's property tax liability. This Article shows that under most conditions, these restrictions will induce honest reporting by owners while reducing the transaction costs created by the compensation process. The result is a dramatically more efficient law of eminent domain that is also far more respectful of private property rights.

Original languageAmerican English
Pages (from-to)871-906
Number of pages36
JournalStanford Law Review
Volume59
Issue number4
StatePublished - Feb 2007
Externally publishedYes

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