eminent domain

eminent domain - The Fifth Amendment of the United States...

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The Fifth Amendment of the United States constitution states that the government may not take property from a private owner for public use without paying just compensation to the owner 1 . Eminent Domain is a necessary governmental tool to secure that public welfare is most efficiently maximized. In circumstances where the market mechanism fails to allocate resources to their most efficient use the government can use Eminent Domain to increase public utility of the resource. The requirement of “public use” for takings by the government helps to avoid excessive takings by the government and the ability for governments to economically stimulate certain areas by using Eminent Domain to reclaim areas that have become blighted. Just compensation for physical takings is to pay the owner the market value of the parcel being condemned. This method of compensation taxes the owner their subjective values to their property. Just compensation for regulatory takings is much less defined. The type of compensation that is required by the government will affect the incentives for land use of landowners as well as provide a check on regulators from creating excessive regulations. The purpose of a market is to ensure the efficient allocation of resources to those who value the product the most and will gain the most utility from the resource. For an in market transaction to occur both parties must agree on a mutually beneficial value. The value of the product or resource being traded must exceed the value to the seller plus the costs of the seller to enter the market. The purchaser must regard the agreeable value to be lower than the expected annual net returns of the property discounted to present value and the cost of entering the market as a buyer. If both of these criteria are met than 1 Miceli, Thomas J. Compensation for regulatory takings an economic analysis with applications. Greenwich, Conn: JAI, 1996. Print. 3
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a transaction will occur at the agreed value, which is the market price 2 . Property transactions occurring in the market system tend to move property rights from less productive uses to more productive uses. Steve Calandrillo offers an example of inefficient property use under private supply. Suppose that a bridge was privately owned and that the owner desired to charge people for the use of the bridge. For the purpose of this example it is assumed that the owner is unable to discriminate prices amongst each potential user resulting in a flat rate chosen by the owner. This flat fee will cause potential users who value the use of the bridge at a lower price than that set by the owner to be unable to use the resource. This restriction of access created by the owner’s monopoly price setting and his inability to discriminate amongst potential users results in a deadweight loss of utility to society. Private suppliers will not take into account any negative externalities inflicted upon those
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This note was uploaded on 04/15/2010 for the course ECON 4040 taught by Professor Hay during the Spring '07 term at Cornell.

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eminent domain - The Fifth Amendment of the United States...

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