THE ECONOMICS OF COMPENSATING PROPERTY OWNERS

Richard L. Stroup

Contemporary Economic Policy, 1997, vol. 15, issue 4, 55-65

Abstract: Using command‐and‐control regulation of land use to produce a public good (as opposed to preventing physical off‐property harms) without compensating the landowner can be expected to produce two unintended consequences: (i) management actions by landowners to reduce the land's attractiveness for production of the public good being sought and (ii) regulatory decisions made as though more costly regulation were costless. Higher costs imposed by the second consequence feed back to worsen the first. Examples from enforcement of current Endangered Species Act regulations provide illustrations. The paper uses a graphical framework to emphasize the qualitative difference between regulatory control without compensation on one hand and the rental or purchase of results on the other. Some low‐cost, highly successful habitat preservation programs utilizing voluntary action would be more difficult to sustain if the habitat were for listed species under the current ESA.

Date: 1997
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