Tuesday, October 18, 2005

Bell and Parchomovsky on Bargaining for Takings Compensation

Abraham Bell (Bar Ilan University - Faculty of Law; Fordham University - School of Law) and Gideon Parchomovsky (University of Pennsylvania - School of Law) have posted Bargaining for Takings Compensation on SSRN.  Here's the abstract:

Efficiency and fairness require paying full compensation to property owners when their property is taken by eminent domain. Yet, to date, the evidentiary challenge of proving subjective value has proved insurmountable, and current law requires condemnees to settle for fair market value. This Article proposes a self-assessment mechanism that can make full compensation at subjective value practical. Under our proposal, property owners must be given the opportunity to state the value of the property designated for condemnation. Once property owners name their price, the government can take the property only at that price. However, if the government chooses not to take and pay, the property will become subject to two restrictions. First, for seventy years, the property cannot be sold for less than the self-assessed price; if the property is transferred for less, the owner will have to pay the difference to the government. Second, the self-assessed price - discounted to take account of the peculiarities of property tax assessments - will become the benchmark for the owner's property tax liability. These dual burdens of partial inalienability and enhanced tax liability will induce honest reporting by owners, while reducing the transaction costs created by the compensation process. The Article sketches several refinements of and limitations on this mechanism in order to improve its accuracy and prevent both the government and property owners from abusing it. We demonstrate that, properly used, our self-assessment mechanism can dramatically enhance the efficiency and fairness of eminent domain proceedings, and may even be extended to regulatory takings.

Ben Barros


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