Loggers vs. Campers: Compensation for the Taking of Property Rights

Posted: 5 Jan 2005

See all articles by Ron Giammarino

Ron Giammarino

University of British Columbia (UBC) - Sauder School of Business

Ed Nosal

Federal Reserve Banks - Federal Reserve Bank of Atlanta

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Abstract

Governments often have the power to take property rights from private citizens but their responsibility to pay compensation is typically not well specified. In this article we examine how the compensation rule adopted by a country affects both private investment decisions and takings decisions. We build on a widely accepted argument that any lump sum compensation, including zero, is the socially optimal compensation scheme. The lump sum compensation result hinges critically on the assumptions that the government maximizes social welfare and that the level of private investment does not affect the alternative use of the property rights. We find that when either of these assumptions are relaxed, the optimal compensation scheme will generally depend upon market values. The model presented here provides strong support for market value compensation for the taking of property rights in modern societies.

Suggested Citation

Giammarino, Ronald and Nosal, Ed, Loggers vs. Campers: Compensation for the Taking of Property Rights. The Journal of Law, Economics, and Organization, Vol. 21, No. 1, pp. 136-152, 2005. Available at SSRN: https://ssrn.com/abstract=635462

Ronald Giammarino

University of British Columbia (UBC) - Sauder School of Business ( email )

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Canada
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Ed Nosal (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

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