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Taking the Castle: Efficiency and the Vibe of It

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  • Shapiro, Perry
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    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.

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    File URL: http://www.escholarship.org/uc/item/442909rh.pdf;origin=repeccitec
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    Bibliographic Info

    Paper provided by Department of Economics, UC Santa Barbara in its series University of California at Santa Barbara, Economics Working Paper Series with number qt442909rh.

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    Date of creation: 01 Jan 2002
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    Handle: RePEc:cdl:ucsbec:qt442909rh

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    Keywords: Taking; the; Castle; Efficiency; Vibe;

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    1. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
    2. 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.
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