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Loggers vs. campers: compensation for the taking of property rights

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  • Ronald Giammarino
  • Ed Nosal
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    Abstract

    Governments 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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    File URL: http://www.clevelandfed.org/Research/Workpaper/2004/WP04-06.pdf
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    Bibliographic Info

    Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 0406.

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    Date of creation: 2004
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    Handle: RePEc:fip:fedcwp:0406

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    Keywords: Right of property ; Eminent domain;

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    1. Grossman, G.M. & Helpman, E., 1992. "Protection for Sale," Papers, Princeton, Woodrow Wilson School - Public and International Affairs 162, Princeton, Woodrow Wilson School - Public and International Affairs.
    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, MIT Press, vol. 99(1), pages 71-92, February.
    3. Baxter, William F & Altree, Lillian R, 1972. "Legal Aspects of Airport Noise," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 15(1), pages 1-113, April.
    4. De Alessi, Louis, 1969. "Implications of Property Rights for Government Investment Choices," American Economic Review, American Economic Association, American Economic Association, vol. 59(1), pages 13-24, March.
    5. Nosal, Ed, 2001. "The taking of land: market value compensation should be paid," Journal of Public Economics, Elsevier, Elsevier, vol. 82(3), pages 431-443, December.
    6. Hermalin, Benjamin E, 1995. "An Economic Analysis of Takings," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 11(1), pages 64-86, April.
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