Kelly, Daniel B. --- "Acquiring Land Through Eminent Domain: Justifications, Limitations, and Alternatives" [2011] ELECD 160; in Ayotte, Kenneth; Smith, E. Henry (eds), "Research Handbook on the Economics of Property Law" (Edward Elgar Publishing, 2011)

Book Title: Research Handbook on the Economics of Property Law

Editor(s): Ayotte, Kenneth; Smith, E. Henry

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781847209795

Section: Chapter 16

Section Title: Acquiring Land Through Eminent Domain: Justifications, Limitations, and Alternatives

Author(s): Kelly, Daniel B.

Number of pages: 28

Extract:

16 Acquiring land through eminent domain:
justifications, limitations, and alternatives
Daniel B. Kelly*


I. INTRODUCTION

The government often seeks to acquire land, either for itself (for roads, schools and other
public projects) or on behalf of private parties (such as real-estate developers and cor-
porations) whose private projects may entail certain public benefits. Typically, the gov-
ernment can acquire such land in one of two ways: (i) it can purchase the land through
consensual transactions; or (ii) it can take the land using eminent domain. Consensual
transactions require the government to buy parcels from existing landowners at
bargained-for prices that are mutually acceptable. Eminent domain allows a government
(the `condemnor') to condemn land, even if one or more of the existing owners is unwill-
ing to sell, in exchange for providing owners (the `condemnees') with just compensation
based on the `fair market value' of their property. This chapter explores the justifications
for, limitations of and alternatives to the government's use of eminent domain.
The primary functional justifications for eminent domain involve bargaining prob-
lems, including the holdout problem, the bilateral monopoly problem and other transac-
tion costs, as well as the existence of externalities. The holdout problem is particularly
noteworthy, and this chapter analyzes three types of holdouts, depending on whether the
failure in bargaining is the result of strategic behavior among owners, the presence of
a large number of owners or a single owner who is unwilling to sell because of a highly
idiosyncratic valuation (see ...