Taking the Castle: Efficiency and the Vibe of It

Perry Shapiro

University of California at Santa Barbara, Economics Working Paper Series from Department of Economics, UC Santa Barbara

Abstract: The owners of property taken for public use are often compensated for their loss. Compensation based on market value is known to create a moral hazard problem and induce inefficient investment. However, no compensation, while efficiency inducing, is not a feasible, or desirable alternative, because it is perceived to be unfair: individual landowners crushed under the governmental leviathan. An alternative is proposed for public projects (as road construction) for which all benefits are incorporated in land values. In this case compensation based on the value of a property had it not been taken, rather than its market value prior to the public project, is both efficient and fair.

Keywords: Taking; the; Castle; Efficiency; Vibe (search for similar items in EconPapers)
Date: 2002-01-01
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