Federal Reserve Bank of Cleveland
Federal Reserve Bank of Cleveland Working Paper No. 07-13
This paper considers the implications associated with a recent Supreme Court ruling that can be interpreted as supporting the use of eminent domain in transferring the property rights of one private agent - a landowner - to another private agent - a developer. Compared to voluntary exchange, when property rights are transferred via eminent domain, landowners' investments in their properties become more inefficient and, as a result, any any benefit associated with mitigating the holdout problem between landowners and the developer is reduced. Social welfare can only increase if the holdout problem is significant; otherwise, social welfare will fall when property rights are transferred via eminent domain.
Number of Pages in PDF File: 24
Keywords: eminent domain, social welfare, property rights, holdout problem, bargaining
JEL Classification: C7, D61, H11, P14working papers series
Date posted: October 17, 2007 ; Last revised: October 23, 2007
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