POLITICAL ECONOMY AND THE EFFICIENCY OF COMPENSATION FOR TAKINGS

Timothy Brennan and James Boyd

Contemporary Economic Policy, 2006, vol. 24, issue 1, 188-202

Abstract: To assess compensation for regulation‐induced “takings,” the authors model political support for regulation as a function of externalities, landowner wealth, and tax burdens. When competing social interests have equal influence on political outcomes, compensation should not be paid. However, when environmentalists and property owners have unequal influence, the model yields several counterintuitive implications. For example, disenfranchised environmentalists should support takings compensation, since it reduces landowner opposition to regulation. The authors also show how compensation rules can limit the deadweight social costs of income transfers, while recognizing their effects on regulator and landowner behavior. (JEL K11, D72, L51)

Date: 2006
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