Taking (Eminent Domain)

Abstract

Compensation for a public taking of private property (typically land) can affect both government’s and landowners’ decisions, and compensation rules affect both real and perceived fairness. Arguably, no compensation is efficient; landowners will account for probable loss when making their investment decisions, since such decisions are determined by events outside the discretion of either the landowners or the government (though if the taking decision is made to benefit government or landowners, zero compensation may be inefficient). But zero compensation is unconstitutional (in the United States and Australia) and inequitable. A trade-off between efficiency and equity is therefore normally unavoidable.

This chapter was originally published in The New Palgrave Dictionary of Economics, 2nd edition, 2008. Edited by Steven N. Durlauf and Lawrence E. Blume