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Irreversible development and eminent domain: Compensation rules, land use and efficiency

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  • Turnbull, Geoffrey K.
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    Abstract

    This paper examines the efficiency of eminent domain used to acquire green spaces, situations in which private investment permanently destroys the ecological externality value of land. The real option approach takes into account this irreversibility and changes established conclusions for the reversible investment case. Under irreversibility, eminent domain efficiency is more sensitive to compensation rules than previously thought. Setting compensation equal to what market value would be in the absence of eminent domain--the approach taken in the US and many other countries--reduces efficiency relative to losing the ecological externality to private development. Compensating at the market value under eminent domain threat increases efficiency, but not as much as compensation at social value does.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Housing Economics.

    Volume (Year): 19 (2010)
    Issue (Month): 4 (December)
    Pages: 243-254

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    Handle: RePEc:eee:jhouse:v:19:y:2010:i:4:p:243-254

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    Web page: http://www.elsevier.com/locate/inca/622881

    Related research

    Keywords: Eminent domain Compensation Green space Land value;

    References

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    1. Turnbull Geoffrey K & Salvino Robert F., 2009. "Do Broader Eminent Domain Powers Increase Government Size?," Review of Law & Economics, De Gruyter, vol. 5(1), pages 785-806, December.
    2. Innes, Robert, 1997. "Takings, Compensation, and Equal Treatment for Owners of Developed and Undeveloped Property," Journal of Law and Economics, University of Chicago Press, vol. 40(2), pages 403-32, October.
    3. Williams, Joseph T, 1993. "Equilibrium and Options on Real Assets," Review of Financial Studies, Society for Financial Studies, vol. 6(4), pages 825-50.
    4. Geoffrey K. Turnbull, 2002. "Land Development under the Threat of Taking," Southern Economic Journal, Southern Economic Association, vol. 69(2), pages 290-308, October.
    5. 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.
    6. Williams, Joseph T, 1991. "Real Estate Development as an Option," The Journal of Real Estate Finance and Economics, Springer, vol. 4(2), pages 191-208, June.
    7. Fischel, William A. & Shapiro, Perry, 1989. "A constitutional choice model of compensation for takings," International Review of Law and Economics, Elsevier, vol. 9(2), pages 115-128, December.
    8. 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.
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