Private Takings

Abstract

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.

Keywords: eminent domain, social welfare, property rights, holdout problem, bargaining

JEL Classification: C7, D61, H11, P14