Friday, September 26, 2008

Chang on Eminent Domain Compensation

Yun-chien Chang (NYU) has posted An Empirical Study of Compensation Paid in Eminent Domain Settlements: New York City 1990-2002 on SSRN.  Here's the abstract:

No large-scale empirical study on compensation paid in eminent domain settlement has been undertaken in the past thirty years. Yet many state legislatures, in response to the Kelo case, have implemented new constitutions and laws (or have bills pending) to increase condemnation compensation, despite the lack of empirical grounds. Takings scholarship is also built on assumptions or anecdotes rather than empirical facts about how much condemnees have been compensated. I use hedonic regression models and about 80,000 comparable sales to estimate the fair market value of 430 condemned properties in New York City from 1990 to 2002.

I find that 71% of these settled cases are compensated with less than fair market value; 24% received more than fair market value; only very few of them (5%) got roughly fair market value. Specifically, most owners of high-value residential properties received more than fair market value, while most owners of low-value residential properties and vacant land receive less than fair market value. Most industry property owners are over-compensated, while most retail property owners are under-compensated. These results are statistically significant. Furthermore, the magnitudes of over- and under-compensation are often extreme, meaning condemnees received more or less than 50% of estimated fair market value.

My explanations for the empirical findings are multifold, because no single approach alone can explain the magnitude and distribution of the under-compensation and over-compensation among residential properties, commercial properties and vacant land. The imperfection in estimating fair market value of both regression models and appraisal methods is one reason. The condemnee-side lawyers' incentives to work harder on high-value cases are another. The government officials' utility function should impact condemnation compensation, but my data do not allow me to ascertain whether the government maximizes budgetary interests or political interests. I have tested other factors, such as the condemned properties' blight, tax default history, location, size, title-vesting year, age, owner type, length of settlement time, and planned use after takings. But I found no obvious pattern.

Ben Barros

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