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

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  • EMMA AISBETT
  • LARRY KARP
  • CAROL MCAUSLAND

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.

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Bibliographic Info

Article provided by The Economic Society of Australia in its journal Economic Record.

Volume (Year): 86 (2010)
Issue (Month): 274 (09)
Pages: 367-383

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Handle: RePEc:bla:ecorec:v:86:y:2010:i:274:p:367-383

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References

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  1. Nosal, Ed, 2001. "The taking of land: market value compensation should be paid," Journal of Public Economics, Elsevier, vol. 82(3), pages 431-443, December.
  2. Polinsky, A Mitchell & Shavell, Steven, 1992. "Enforcement Costs and the Optimal Magnitude and Probability of Fines," Journal of Law and Economics, University of Chicago Press, vol. 35(1), pages 133-48, April.
  3. Polinsky, A Mitchell, 1980. "Strict Liability vs. Negligence in a Market Setting," American Economic Review, American Economic Association, vol. 70(2), pages 363-67, May.
  4. Timothy J. Brennan & James Boyd, 2006. "Political Economy And The Efficiency Of Compensation For Takings," Contemporary Economic Policy, Western Economic Association International, vol. 24(1), pages 188-202, 01.
  5. Miceli, Thomas J & Segerson, Kathleen, 1994. "Regulatory Takings: When Should Compensation Be Paid?," The Journal of Legal Studies, University of Chicago Press, vol. 23(2), pages 749-76, June.
  6. Blume, Lawrence & Rubinfeld, Daniel L & Shapiro, Perry, 1984. "The Taking of Land: When Should Compensation Be Paid?," The Quarterly Journal of Economics, MIT Press, vol. 99(1), pages 71-92, February.
  7. Hermalin, Benjamin E, 1995. "An Economic Analysis of Takings," Journal of Law, Economics and Organization, Oxford University Press, vol. 11(1), pages 64-86, April.
  8. Robert Innes & Stephen Polasky & John Tschirhart, 1998. "Takings, Compensation and Endangered Species Protection on Private Lands," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 35-52, Summer.
  9. A. Mitchell Polinsky, 1980. "Strict Liability versus Negligence in a Market Setting," NBER Working Papers 0420, National Bureau of Economic Research, Inc.
  10. Spulber, Daniel F., 1985. "Effluent regulation and long-run optimality," Journal of Environmental Economics and Management, Elsevier, vol. 12(2), pages 103-116, June.
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Cited by:
  1. Aisbett Emma & Karp Larry & McAusland Carol, 2010. "Compensation for Indirect Expropriation in International Investment Agreements: Implications of National Treatment and Rights to Invest," Journal of Globalization and Development, De Gruyter, vol. 1(2), pages 1-35, December.
  2. Emma Aisbett, 2010. "Powerful Multinational or Persecuted Foreigners: ‘Foreignness’ and Influence over Government," CEPR Discussion Papers 638, Centre for Economic Policy Research, Research School of Economics, Australian National University.

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