Taking Compensation Private

36 Pages Posted: 27 Sep 2005 Last revised: 30 Jul 2009

Abraham Bell

Bar Ilan University - Faculty of Law; University of San Diego School of Law

Gideon Parchomovsky

University of Pennsylvania Law School; Bar Ilan University - Faculty of Law

Date Written: 2007

Abstract

In light of the expansive interpretation of the public use requirement, the payment of just compensation remains the only meaningful limit on the government's eminent domain power and, correspondingly, the only safeguard of private property owners' rights against abusive takings. Yet, the current compensation regime is suboptimal. While both efficiency and fairness require paying full compensation for seizures by eminent domain, current law limits the compensation to market value. Despite the virtual consensus about the inadequacy of market compensation, courts adhere to it for a purely practical reason: there is no way to measure the true subjective value of property to its owner. Subjective value is neither observable nor verifiable to third parties and courts cannot rely upon owners' reports of the value they attach to their properties. To date, the challenge of screening truthful from exaggerated evaluation has proven insurmountable.

This Article solves the undercompensation conundrum. It offers a novel self-assessment mechanism that enables the payment of full compensation at subjective value when private property is taken by eminent domain. Under the proposed mechanism, property owners would get to set the price of the property designated for condemnation. The government could then either take the property at the designated price, or abstain, leaving the property subject to two new proposed restrictions. First, for the life of the owner, the property could not be sold for less than the self-assessed price, adjusted on the basis of the local housing price index. Second, the self-assessed price - discounted to take account of the peculiarities of property tax assessments - would become the new benchmark for the owner's property tax liability.

The Article shows that under most conditions, these restrictions will induce honest reporting by owners, while reducing the transaction costs created by the compensation process. The result is a dramatically more efficient law of eminent domain that is also far more respectful of private property rights.

Keywords: takings, compensation, eminent domain, self-assessment, just compensation, alienability, property tax, tax assessments

JEL Classification: H29, K10, K11, K41

Suggested Citation

Bell, Abraham and Parchomovsky, Gideon, Taking Compensation Private (2007). Stanford Law Review, Vol. 59, p. 871, 2007; Bar Ilan Univ. Pub Law Working Paper No. 13-05; U of Penn Law School, Public Law Working Paper No. 06-12; U of Penn, Inst for Law & Econ Research Paper No. 05-22; Fordham Law Legal Studies Research Paper No. 98. Available at SSRN: https://ssrn.com/abstract=806164 or http://dx.doi.org/10.2139/ssrn.806164

Abraham Bell (Contact Author)

Bar Ilan University - Faculty of Law ( email )

Faculty of Law
Ramat Gan, 52900
Israel

HOME PAGE: http://law.biu.ac.il/English/segelE.php#

University of San Diego School of Law ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States

Gideon Parchomovsky

University of Pennsylvania Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States
215-898-1603 (Phone)

Bar Ilan University - Faculty of Law ( email )

Ramat Gan 52900
Israel
972-2-5317078 (Phone)

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