The Long-Term Impact of Kelo v. City of New London: Comparing State Legislative and Judicial Responses

After 20 years since the U. S. Supreme Court ruling in Kelo v City of New London, the academic literature has mostly dried up. Yet cases of economic development takings continue to emerge across the country. This paper revisits some of the main issues from a law and economics perspective. What are the long-term effects of the Kelo ruling and the state reforms it spawned? How effective have regulations been in accomplishing their goals of reducing inefficient economic development takings? We review the quantitative literature that compared the 50 states’ legislative and judicial responses to Kelo, and then present a comparative case study of two states: Michigan, which enacted significant reforms, and North Carolina, which enacted relatively mild reforms. Over time, developers and local or state authorities explore increasingly creative ways to extract rents through loophole mining, boosted by a diminished spotlight. Thus, relatively strong takings powers that may appear efficient in the short run may, in the long run, lead to greater inefficiencies than intended, implying that stricter regulations may become more necessary in the long-run to maintain efficiency.