Free riders, holdouts, and public use: a tale of two externalities
First Online: 29 April 2010 Received: 09 March 2009 Accepted: 08 April 2010 DOI:
10.1007/s11127-010-9648-z Cite this article as: Miceli, T.J. Public Choice (2011) 148: 105. doi:10.1007/s11127-010-9648-z Abstract
Free riders and holdouts are distinct market failures that potentially impede the completion of otherwise beneficial transactions. The key difference is that the free rider problem is a demand side externality that requires taxation to compel payment for a public good, while the holdout problem is a supply side externality that requires eminent domain to force the sale of land for large scale projects. This paper highlights the distinction between these two problems and uses the resulting insights to clarify the meaning of the public use requirement of the Fifth Amendment takings clause.
Keywords Eminent domain Free riders Holdouts Public use Takings References
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