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Police-powers, regulatory takings and the efficient compensation of domestic and foreign investors

  • Aisbett, Emma
  • Karp, Larry

    ()

    (University of California, Berkeley. Dept of agricultural and resource economics and policy)

  • McAusland, Carol

In customary international and public law, “takings†resulting from regulations designed to protect the public good are generally excluded from compensation rules; this exclusion is known as a police powers carve-out (PPCO). Increasingly, this PPCO is being challenged, particularly in international investment law. This paper analyzes the efficiency properties of a PPCO in a model with endogenous regulation, investment and entry. We design a one-parameter family of carve-out/compensation schemes that induce efficient regulation and firm level investment even when the regulator suffers fiscal illusion and the social benefit from regulation is private information to the regulator. We show that offering a carve-out reduces the subsidy to risky industry implicit in compensation rules; thus, a carve-out can mitigate the entry problem.

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File URL: http://repositories.cdlib.org/are_ucb/1061
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Paper provided by University of California at Berkeley, Department of Agricultural and Resource Economics and Policy in its series CUDARE Working Paper Series with number 1061.

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Length: 34 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:are:cudare:1061
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  1. Robert Innes & Stephen Polasky & John Tschirhart, 1998. "Takings, Compensation and Endangered Species Protection on Private Lands," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 35-52, Summer.
  2. Polinsky, A Mitchell, 1980. "Strict Liability vs. Negligence in a Market Setting," American Economic Review, American Economic Association, vol. 70(2), pages 363-67, May.
  3. A. Mitchell Polinsky & Steven Shavell, 1990. "Enforcement Costs and the Optimal Magnitude and Probability of Fines," NBER Working Papers 3429, National Bureau of Economic Research, Inc.
  4. A. Mitchell Polinsky, 1980. "Strict Liability versus Negligence in a Market Setting," NBER Working Papers 0420, National Bureau of Economic Research, Inc.
  5. Miceli, Thomas J & Segerson, Kathleen, 1994. "Regulatory Takings: When Should Compensation Be Paid?," The Journal of Legal Studies, University of Chicago Press, vol. 23(2), pages 749-76, June.
  6. 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.
  7. 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.
  8. Timothy J. Brennan & James Boyd, 2006. "Political Economy And The Efficiency Of Compensation For Takings," Contemporary Economic Policy, Western Economic Association International, vol. 24(1), pages 188-202, 01.
  9. Spulber, Daniel F., 1985. "Effluent regulation and long-run optimality," Journal of Environmental Economics and Management, Elsevier, vol. 12(2), pages 103-116, June.
  10. Nosal, Ed, 2001. "The taking of land: market value compensation should be paid," Journal of Public Economics, Elsevier, vol. 82(3), pages 431-443, December.
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