40 Pages Posted: 20 Oct 2007
Date Written: October 2007
Governments employ two basic policies for acquiring land: taking it through exercise of their power of eminent domain; and purchasing it. The social desirability of these two policies is compared in a model in which the government's information about landowners' valuations is imperfect. Under this assumption, the policy of purchase possesses the market test advantage that the government obtains land only if an owner's valuation is low enough that he is willing to sell it. However, the policy suffers from a drawback when the land that the government needs is owned by many parties. In that case, the government's acquisition will fail if any of the owners refuses to sell. Hence, the policy of eminent domain becomes appealing if the number of owners of the land is large. This conclusion holds regardless of whether the land that the government seeks is a parcel at a fixed location or instead may be located anywhere in a region.
JEL Classification: D8, K11, H1, H4
Suggested Citation: Suggested Citation
Shavell, Steven, Eminent Domain versus Government Purchase of Land Given Imperfect Information about Owners' Valuations (October 2007). Harvard Law and Economics Discussion Paper No. 598. Available at SSRN: https://ssrn.com/abstract=1023100 or http://dx.doi.org/10.2139/ssrn.1023100