This paper considers the implications associated with a recent Supreme Court ruling that can be interpreted as supporting the use of eminent domain in transferring the property rights of one private agent—a landowner—to another private agent—a developer. Compared to voluntary exchange, when property rights are transferred via eminent domain, landowners’ investments in their properties become more inefficient and, as a result, any benefit associated with mitigating the holdout problem between landowners and the developer is reduced. Social welfare can only increase if the holdout problem is significant; otherwise, social welfare will fall when property rights are transferred via eminent domain.
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- Thomas A. Garrett & Paul Rothstein, 2007. "The taking of prosperity? Kelo vs. New London and the economics of eminent domain," The Regional Economist, Federal Reserve Bank of St. Louis, issue Jan, pages 4-9.
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- Munch, Patricia, 1976. "An Economic Analysis of Eminent Domain," Journal of Political Economy, University of Chicago Press, vol. 84(3), pages 473-97, June.
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