Loggers vs. campers: compensation for the taking of property rights
AbstractGovernments often have the power to take property rights from private citizens but their responsibility to pay compensation is typically not well specified. In this paper we examine how the compensation rule adopted by a country affects both private investment decisions and takings decisions. We build on a widely accepted argument that any lump sum compensation, including zero, is the socially optimal compensation scheme. The lump sum compensation result hinges critically on the assumptions that the government maximizes social welfare and that the level of private investment does not affect the alternative use of the property rights. We find that when either of these assumptions is relaxed, the optimal compensation scheme will generally depend upon market values.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 0406.
Date of creation: 2004
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