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Marginal Cost Pricing and Efficient Taking under Uncertainty

Author

Listed:
  • T. Nicolaus Tideman
  • Florenz Plassmann

Abstract

We describe a mechanism for government taking under uncertainty that provides incentives for governments to make efficient taking decisions and for property owners to use their properties efficiently. We argue that efficiency in takings requires that governments not only pay the value of property when it is taken but also pay the reduction in property value that they cause when identifying properties as potential targets of takings. This is a straightforward application of the general principle of marginal cost pricing. Unlike existing proposals to improve the efficiency of takings, our mechanism requires governments to pay amounts that are sufficient to fully compensate property owners for their losses.

Suggested Citation

  • T. Nicolaus Tideman & Florenz Plassmann, 2007. "Marginal Cost Pricing and Efficient Taking under Uncertainty," Working Papers e07-7, Virginia Polytechnic Institute and State University, Department of Economics.
  • Handle: RePEc:vpi:wpaper:e07-7
    as

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    File URL: ftp://repec.econ.vt.edu/Papers/Tideman/EfficientTaking.pdf
    File Function: First version, 2007
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    References listed on IDEAS

    as
    1. Wendner, Ronald, 1999. "A Calibration Procedure of Dynamic CGE Models for Non-steady State Situations Using GEMPACK," Computational Economics, Springer;Society for Computational Economics, vol. 13(3), pages 265-287, June.
    2. Blejer, Mario I. & Feldman, Ernesto V. & Feltenstein, Andrew, 2002. "Exogenous shocks, contagion, and bank soundness: a macroeconomic framework," Journal of International Money and Finance, Elsevier, vol. 21(1), pages 33-52, February.
    3. Dixon, Peter B. & Pearson, K.R. & Picton, Mark R. & Rimmer, Maureen T., 2005. "Rational expectations for large CGE models: A practical algorithm and a policy application," Economic Modelling, Elsevier, vol. 22(6), pages 1001-1019, December.
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    Keywords

    Uncertainty; Government; Efficient Property Use;

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