Constitutional Principles of Regulatory Takings: A Utilitarian Perspective

The question of when a regulation may result in a government taking of private property that must be compensated has long been a contentious issue. Although economic models have attempted to answer this complicated question, their tendency to ignore preexisting rights can contribute to incomplete views concerning whether and how much to compensate. Based on court cases, jurisprudence, and theories that have been accumulated primarily in the United States, we endeavor to overcome the limited nature of the existing models in coping with regulatory takings. We provide a more workable formula in which an extended concept of efficiency is utilized vis-à-vis the narrowly defined efficiency criterion, for example, by explicitly introducing demoralization costs and settlement costs. This extended concept is systematically derived from synthesizing the classic theories of Frank Michelman and Richard Epstein. In particular, we conceptualize the three major determinants of demoralization costs that play pivotal roles in deciding on compensation. This utilitarian formula is shown not only to more accurately reflect the real world but also to encompass the conventional norm of fairness, as stipulated in the constitutions of many countries.