1. Law and Economics-Charles W. Upton Takings

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. Takings

8. The Right Choice

9. Takings The Right Choice The City’s Choice

10. Takings The Case for Eminent Domain Indispensable property.

11. 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.

12. 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.

13. 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

14. Takings Eminent Domain for Private Use The taking power is used sometimes to take property from one person to another.

15. 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.

16. Takings Eminent Domain for Private Use Sam Jones owns property that the market values at $40,000.

17. 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.

18. 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..

19. 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.

20. 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.

21. Takings End ©2004 Charles W. Upton