Pluralism and Regulatory Failure: When Should Takings Trigger Compensation?

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Pluralism and Regulatory Failure: When Should Takings Trigger Compensation?

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Brennan, Timothy () (Resources for the Future)
Boyd, James () (Resources for the Future)

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James W. Boyd

Abstract

The paper evaluates the desirability of compensation for regulatory takings. To do so, we describe a public choice model in which regulators' decisions are influenced by competing political interests. We consider how the political incentives of landowners, environmentalists, and taxpayers are affected by alternative compensation rules and in turn describe the regulatory decisions made in such a pluralistic political environment. Modeling the regulator's incentives in this way leads to the conclusion that compensation should not be paid unless environmentalists and property owners have unequal influence politically. Moreover, the model has several counter-intuitive implications when political influence is not balanced. For instance, if environmentalists are disenfranchised they should support compensation, since it reduces property owner opposition to regulation. In contrast, if environmentalists wield disproportionate influence, penalizing rather than compensating landowners can induce more efficient regulation by stimulating landowner opposition. The analysis emphasizes the deadweight social costs of compensation and the desirability of compensation rules conditioned on both diminished land value and irreversible landowner investments.

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Paper provided by Resources For the Future in its series Discussion Papers with number dp-96-09.

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Date of creation: 01 Jan 1996
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Handle: RePEc:rff:dpaper:dp-96-09

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This paper has been announced in the following NEP Reports:

NEP-ALL-2006-01-24 (All new papers)
NEP-POL-2006-01-24 (Positive Political Economics)

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Fischel, William A & Shapiro, Perry, 1988. "Takings, Insurance, and Michelman: Comments on Economic Interpretations of "Just Compensation" Law," Journal of Legal Studies, University of Chicago Press, vol. 17(2), pages 269-93, June.
Miceli, Thomas J & Segerson, Kathleen, 1994. "Regulatory Takings: When Should Compensation Be Paid?," Journal of Legal Studies, University of Chicago Press, vol. 23(2), pages 749-76, June.
Romer, Thomas & Rosenthal, Howard, 1979. "The elusive median voter," Journal of Public Economics, Elsevier, vol. 12(2), pages 143-170, October. [Downloadable!] (restricted)
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. [Downloadable!] (restricted)
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.
Timothy J. Brennan & James Boyd, 2006. "Political Economy and the Efficiency of Compensation for Takings," Contemporary Economic Policy, Oxford University Press, vol. 24(1), pages 188-202, January.
Becker, Gary S., 1985. "Public policies, pressure groups, and dead weight costs," Journal of Public Economics, Elsevier, vol. 28(3), pages 329-347, December. [Downloadable!] (restricted)
Other versions:
- Gary S. Becker, 1984. "Public Policies, Pressure Groups, and Dead Weight Costs," University of Chicago - George G. Stigler Center for Study of Economy and State 35, Chicago - Center for Study of Economy and State.

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