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

Emma Kate Aisbett, Larry S. Karp and Carol McAusland ()

The Economic Record, 2010, vol. 86, issue 274, pages 367-383

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. Copyright © 2009 The Economic Society of Australia.

Date: 2010
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Working Paper: Police-powers, regulatory takings and the efficient compensation of domestic and foreign investors (2008) Downloads
Working Paper: Police-powers, regulatory takings and the efficient compensation of domestic and foreign investors (2008) Downloads
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