AND REGULATION OF
This chapter examines government acquisition and regulation of private property. Unlike private individuals, who must bargain with owners when they wish to acquire property, the government can acquire private property for public use without the owner's consent, provided that it pays just compensation. Thus, private property owners have only liability-rule protection of their property visà-vis the government. The first part of this chapter is an economic analysis of government takings of this sort. It examines the economic justification for the government's power of eminent domain, the meaning of just compensation, and the implications of eminent domain for the land-development decisions of property owners.
In contrast to physical acquisitions or intrusions, government regulation of private property generally does not require compensation. Instead, it is viewed as a legitimate exercise of the government's police power. There is a longstanding question, however, about whether or when a regulation ever becomes so burdensome to a property owner as to require compensation under the takings clause. Regulations that cross this threshold are referred to as regulatory takings. In the second part of this chapter I develop an economic framework for determining where this threshold should be. I then employ the framework to discuss several related topics, such as whether investment-backed expectations are necessary for compensation to be paid, whether capitalization of the threat of regulation into land prices renders the compensation question irrelevant, and what the impact of compensation is on the timing of development.
The Fifth Amendment to the U.S. Constitution guarantees, in part, that the government shall not take private property for public use without paying "just compensation". 1 This seemingly straightforward protection of private property from arbitrary government seizure has generated a large literature attempting to interpret and justify its various components. In this section, I will provide an