Takings Law and Infrastructure Investment: Certainty, Flexibility and Compensation
Yale Law School, Program for Studies in Law, Economics and Public Policy, Working Paper No. 220
36 Pages Posted: 8 Dec 1999
Date Written: August 1999
Nation states can reduce the risks faced by infrastructure investors by establishing a background norm that limits the state's ability to undermine the profitability of infrastructure projects. This background norm would be an implicit term in every contract and would provide a kind of guarantee against certain types of state actions. A background norm in the constitutions of some developed states is a "takings clause" that requires the state to pay compensation when it "takes" property for public use. The application of takings jurisprudence to the field of infrastructure investment is the subject of this paper. The paper shows how infrastructure investors in developing countries face risks related to public sector activities. It then summarizes United States takings law, emphasizing its application to infrastructure industries. Next, it provides a principled way to think about government compensation and applies the framework to infrastructure industries and to developing countries trying to establish a credible legal framework for capital investment. The central policy analytic issues are the efficiency consequences of takings doctrine and the fairness of alternative rules.
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