Investor Efficiency in the Face of Takings

Joseph W Trefzger and Peter F Colwell

The Journal of Real Estate Finance and Economics, 1996, vol. 12, issue 1, 23-35

Abstract: Governmental entities at all levels are empowered to acquire private property for the public's benefit, provided that "just compensation" is paid. The level of compensation typically viewed by courts as "just" is market value, but questions arise as to whether market value compensation motivates the private owner of land, potentially subject to a taking, to improve the property to a degree that is socially efficient. Earlier works have found market value to be a compensation level too high to promote efficiency. The present paper offers an analysis, based on a simple model of investor profit maximization, that provides a unified view of models presented in some important earlier works. In a special application of the general case, it is shown that market value can be too low a level of compensation to promote efficient behavior by the land owner. Copyright 1996 by Kluwer Academic Publishers

Date: 1996
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