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Irreversible development and eminent domain: Compensation rules, land use and efficiency

  • Turnbull, Geoffrey K.
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    This paper examines the efficiency of eminent domain used to acquire green spaces, situations in which private investment permanently destroys the ecological externality value of land. The real option approach takes into account this irreversibility and changes established conclusions for the reversible investment case. Under irreversibility, eminent domain efficiency is more sensitive to compensation rules than previously thought. Setting compensation equal to what market value would be in the absence of eminent domain--the approach taken in the US and many other countries--reduces efficiency relative to losing the ecological externality to private development. Compensating at the market value under eminent domain threat increases efficiency, but not as much as compensation at social value does.

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    File URL: http://www.sciencedirect.com/science/article/B6WJR-50YF6J4-1/2/490b7f817596a3ff3edcbf20ac2f8f43
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    Article provided by Elsevier in its journal Journal of Housing Economics.

    Volume (Year): 19 (2010)
    Issue (Month): 4 (December)
    Pages: 243-254

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    Handle: RePEc:eee:jhouse:v:19:y:2010:i:4:p:243-254
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622881

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    1. 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.
    2. Innes, Robert, 1997. "Takings, Compensation, and Equal Treatment for Owners of Developed and Undeveloped Property," Journal of Law and Economics, University of Chicago Press, vol. 40(2), pages 403-32, October.
    3. Williams, Joseph T, 1991. "Real Estate Development as an Option," The Journal of Real Estate Finance and Economics, Springer, vol. 4(2), pages 191-208, June.
    4. Williams, Joseph T, 1993. "Equilibrium and Options on Real Assets," Review of Financial Studies, Society for Financial Studies, vol. 6(4), pages 825-50.
    5. Fischel, William A. & Shapiro, Perry, 1989. "A constitutional choice model of compensation for takings," International Review of Law and Economics, Elsevier, vol. 9(2), pages 115-128, December.
    6. Thomas J. Miceli & Kathleen Segerson, 2011. "Regulatory Takings," Working papers 2011-16, University of Connecticut, Department of Economics.
    7. Geoffrey K. Turnbull, 2002. "Land Development under the Threat of Taking," Southern Economic Journal, Southern Economic Association, vol. 69(2), pages 290-308, October.
    8. 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.
    9. Turnbull Geoffrey K & Salvino Robert F., 2009. "Do Broader Eminent Domain Powers Increase Government Size?," Review of Law & Economics, De Gruyter, vol. 5(1), pages 785-806, December.
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