Money or Nothing: The Adverse Environmental Consequences of Uncompensated Land-Use Controls

Abstract:     
The conventional wisdom holds that requiring compensation for environmental land-use controls would severely limit environmental protection efforts. There are increasing reasons to question this assumption. Both economic theory and recent empirical research demonstrate that failing to compensate private landowners for the costs of environmental regulations discourages voluntary conservation efforts and can encourage the destruction of environmental resources. The lack of a compensation requirement also means that land-use regulation is underpriced as compared to other environmental protection measures for which government agencies must pay. This results in the "overconsumption" of land-use regulations relative to other environmental protection measures that could be more cost-effective at advancing conservation goals. While any specific compensation proposal would present implementation questions, there are reasons to believe that a compensation requirement could improve environmental conservation efforts.

Keywords: regulatory takings, takings compensation, species conservation, property rights, fiscal illusion, land-use control

JEL Classifications: K11, K30, K32, Q24

Working Paper Series