Public Choice

, Volume 148, Issue 1–2, pp 105–117 | Cite as

Free riders, holdouts, and public use: a tale of two externalities



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.


Eminent domain Free riders Holdouts Public use Takings 

JEL Classification

H41 K11 


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Copyright information

© Springer Science+Business Media, LLC 2010

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of ConnecticutStorrsUSA

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