Police Powers, Regulatory Takings and the Efficient Compensation of Domestic and Foreign Investors

17 Pages Posted: 24 Aug 2010

See all articles by Emma Aisbett

Emma Aisbett

ANU - School of Regulation and Global Governance

Larry S. Karp

University of California, Berkeley

Carol McAusland

University of British Columbia (UBC)

Abstract

Modern international investment agreements have challenged the customary exclusion of public good regulations from being considered government ‘takings’ subject to compensation rules. Full compensation for regulatory takings can, however, lead to over-investment and excessive entry in risky industries. An alternative is to ‘carve-out’ apparently efficient regulation from compensation requirements. We design a carve-out/compensation rule that induces efficient regulation and firm-level investment even when the regulator suffers fiscal illusion and has private information about the social benefit from regulation. We also show that a carve-out reduces the subsidy to risky industry implicit in compensation rules, and thus mitigates the entry problem.

Suggested Citation

Aisbett, Emma and Karp, Larry S. and McAusland, Carol, Police Powers, Regulatory Takings and the Efficient Compensation of Domestic and Foreign Investors. Economic Record, Vol. 86, Issue 274, pp. 367-383, September 2010. Available at SSRN: https://ssrn.com/abstract=1661386 or http://dx.doi.org/10.1111/j.1475-4932.2009.00616.x

Emma Aisbett (Contact Author)

ANU - School of Regulation and Global Governance ( email )

Canberra, Australian Capital Territory 2601
Australia

Larry S. Karp

University of California, Berkeley ( email )

Dept. of Agriculture & Resource Economics
313 Giannini Hall
Berkeley, CA 94720
United States
510-643-8911 (Fax)

Carol McAusland

University of British Columbia (UBC) ( email )

2329 West Mall
Vancouver, British Columbia BC V6T 1Z4
Canada

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