"If the City of New London had guilt office space, parking, etc. on land condemned from private owners, a challenge based on the "public use" limitation would be unlikely to succeed..."

I'm guessing Judge Posner means "built," not "guilt," though the slip/typo still offers an interesting, if unintentional, final note to the opinion.

1. Eminent domain is only proper when the use is public and when the compenation is just and the seizure is in compliance with other applicable public laws (due process)

2. No

3. Yes

Easy. 7 out of 9 middle school students would answer likewise after reading only the last portion of the 5th Amendment. (I'm hoping the next post will have something to do with how we might get those middle school students onto the bench).

Mike Kinsley, the columnist, said that municipal governments would rather SCOTUS have reversed because then they would have been able to get a better deal from developers. It'd be great to know what you two think of that claim which is also being discussed on the SCOTUS blog.

In particular:

(1) Are developers generally getting a bigger than desirable share of "gains from trade" than cities because they can negotiate with other competing cities. (Presumably various potential developers also compete with each other, no?)

(2) Legally speaking, could an opinion have been written on these facts that would have charged the lower courts with making sure cities were getting a good deal when using takings to economically develop?

(3) Would it be a good idea, practically speaking, to get the lower courts involved in that?

Perhaps the court did not discuss the holdout problem because "[p]etitioners are not hold-outs." (O'Connor, J., dissenting). Just kidding, (a little "errant language," maybe), they obviously are. And in reality, the Court does mention (or strongly imply) that there was a holdout problem here: "The NLDC successfully negotiated the purchase of most of the real estate in the 90-acre area, but its negotiations with petitioiners failed."

As to the more basic point, it seems to me that "confin[ing] public use to holdout situations," as you discuss, would (besides bearing little relationship to the underlying meaning of the words "public use") make no real difference at all. The government could simply offer to pay the market price, and if a landowner refuses, he becomes a "holdout" against whom eminent domain may be employed. But presumably the government already does makes purchase offers before suing in condemnation, as it appears to have done here. I'm not sure if you have something more in mind.

"[N]or shall private property be taken for public use, without just compensation."

Let's play Justice Scalia's game for a moment and just analyze the text here, without reference to any history or precedent. What in this clause limits the government's power to take property, as long as "just compensation" is paid? One could argue that "for public use" is surplusage. Note that the clause does not say, "private property shall not be taken except for a public use."

Alternatively, even if the clause could be read to limit the takings power, one could argue that "for public use" means simply "by the government" and nothing more. In a democracy, all takings by the government are in some sense for a "public use."

I am just making the textual argument, which the conservatives who love strict interpretations seem to ignore in this case. I'm not sure I agree with it, but Kelo is not necessarily a "liberal" decision if one actually reads the text of the Fifth Amendment..

David,

1, When has Justice Scalia ever suggested that the text of the Constitution ought to be abstracted from its history *and* its precedent?

2, You can't plausibly claim to be analyzing "just" the text while ignoring the anti-surplusage canon, which is about as old as the Constitution is, and an integral part of speaking legal English.

I wonder if David has really read the clause as carefully as he thinks. While the clause REQUIRES the government give "just compensation" for takings of property it does not follow that aslong as "just compensation" is given the government has a right to one's property. For if this were true, then the Framers would have constructed a provision which would allow the government to take whatever property they want aslong as "just compensation" is given. That cannot be correct. Implicit in the clause is an assumption of a VALID "public use." Taking property for a school, a road, an airport, or a military base or project are in a different class than Kelo. After all, the takings clause was drafted as a augmentation of the already present doctrine of eminent domain, it did not create it. It would be interesting to see what uses were considered legal in Colonial America. Am I wrong in assuming that the Takings Clause is more a limitation on the then accepted government power of eminent domain rather than the origin of it?

Palooka: I agree with the last question: it's a limitation of that power, not the source of it.

The Volokh Conspiracy has many excellent posts on Kelo by some first-rate legal scholars: www.volokh.com. Probably just do a "contro+f" search for "Kelo" to find them on the page. Eugene Volokh in particular contends that this ruling should be applauded by libertarians, given that (as Judge Posner pointed out), if there is a strict limit on what constitutes public use, it would create an incentive for local government to take the property and own it, then rent it out to private parties. That would be an inefficiency, because more government ownership tends to lead to less efficient capital allocations.

I have one point to add to this discussion, which is more or less Justice Kennedy's federalism point. These are complex questions about what constitutes an appropriate limit on the police powers, what is public, and what is property. These matters are much better left to the states than the federal judiciary. The 14th Am. sort of inadvertently, in my assessment, stuck a whole lot of this into federal court. I think that the limits on the scope of government power at the state and local level are appropriate for state constitutional limitation and adjudication, not by federal courts, because different peoples and states will think of "public use" differently. Federal courts would do well to defer to localized views on how to define that term. The original drafters simply did NOT conceive of the 5th Amendment in the context of limitations on state/local power. Cities and the federal government are apples and oranges.

"The government could simply offer to pay the market price, and if a landowner refuses, he becomes a "holdout" "

You can't simply define "holdout" as someone who won't take market price. You can't just assume that "market price" is a fair price. People are perfectly justified in asking to be compensated for idiosyncratic values. (For example, "my late husband built this house for me.")

It is only a "holdout" situation when the owner is refusing to sell in bad faith because they are aware of the buyer's prior investment. Of course, it is nearly impossible for a court to tell the difference, which makes the whole framework of Kelo suspect in my opinion.

If you read the oral argument in the case, many of the questions were about how to limit cities from taking from A and giving to B simply because B would be paying a higher municipal tax. Or how much economic depression was required before "development" becomes a public purpose. Of course the actual opinion doesn't give any solution to those questions.

There are those who would argue that New London, being economically depressed, needs low income housing as much as it needs a new office park. No one is going to check and see if the jobs at Pfizer actually go to people from downtown New London or to people who were displaced. Although I am sure those who try to justify the decision will assume it.

In reality, the only benefit to citizens of New London IS likely to be the higher municipal tax base. Hopefully the money will be spent on new roads and services rather than on bribes to more private developers.

"Federal courts would do well to defer to localized views on how to define that term."

Great, but what happens when a state defines a term in a way that clashes with majority views in other states. Or a state starts taking property of out-of-state investors for the "public purpose" of "Texas land for Texans"? It can affect everyone. There was a really good reason for the 14th Amendment, and people who would say "well we are enlightened now and would never do that again" need to spend more time in inner cities or the rural south.

RWS. I read Volokh fairly regularly, but I have not read everything up on Kelo. I did skim over Eugene's belief that this a win for libertarians, and I think there is something to that. Nevertheless, I have to disagree, to a point. I think it is wise not to have a "no takings for private/public use" rule. Sometimes that may be OK. For example, a private company running a public airport could be one such example, I think. Railroads are an excellent one which Posner brought up. I don't think that's really what has people up in arms, that private entities are involved. It seems to me that this case erodes what is traditional eminent domain, and why eminent domain exists. I think the reason we accept the validity of eminent domain is that sometimes there is a project which serves the "greater good" which should go forward even over the objections of property owners. Not every project is worth violating property rights, however. An airport, a military base, a police station, a sewer. Those are all things which serve public necessities--travel, security, public health. While economic development could certainly be a "greater good", most do not believe it is the kind of thing which is properly promoted under government's "eminent domain" powers. In other words, there should be some threshold the government has to reach. Health, safety, transportation, schooling are all traditional government responsibilities. Building hospitals, water treatment plants, police stations, and schools are all things which most would agree are appropriate extensions of government power. Can they same be said for Kelo?

Are the advocates of Kelo saying that anytime the government thinks it has a better use for your property that it can invoke eminent domain? That's what it seems like to me.

Honestly, I don't see what the big deal is w/r/t Kelo. Many pundits are arguing against eminent domain generally. I think it's undisputed that New London could take this property and put up a school or park. Doing so would harm the home owners just as much as putting up an office development. The individual rights ship sailed on this issue a long time ago.

There's a built in rule of reason in ED situations. The local gov'ts consist of elected officials who will lose their jobs if they abuse this power. Lost in the discussion of Kelo is the fact that the commercial development almost certainly will do more to revitalize New London than these 15 homes will. If it doesn't, the officials who authorized it should be on the chopping block and legislation should/can be passed to prevent such a thing from happening again.

I don't understand why right-leaning Americans lose faith in elected bodied when their issues are in front of them.

No matter what is said on the issue of "Emminent Domain" and it does have its problems; it is still emminently superior to Nero's soultion to urban renewal and development. Perhaps that's what the Framers had in mind. ;)

Literal, yet absurd, readings of the Constitution can be amusing.

One such "natural" reading of the Takings and Public Use Clauses would be:

So long as the government is taking property for NON-public uses, no compensation (just or otherwise) need be paid. So the result in Kelo could have been reached by a finding that New London was just handing over people's property for the benefit of the developers.

I write concerning the misconceived hysteria about eminent domain.

Every home in America is not at risk as a result of the Supreme Court decision in Kelo, et al. vs. New London, et al. If the Kelo decision is the baseline, then before your home can be taken for economic development the following must occur.

1. Your home must be situated in commercial/industrial zone that has performed poorly with 80% commercial vacancy rate and 20% residential vacancy.
2. Your neighborhood is in need of $18,000,000 in environmental cleanup.
3. Your neighborhood has roads built and designed over 150 years ago that are inadequate to accommodate access to a new tourist destination state park.
4. Your neighborhood has water and sewer lines in need of upgrade.
5. Your neighborhood has areas below the flood plane that need to be filled.
6. Your city has unemployment double the state average.
7. Your city has suffered from a declining population.
8. 56% of your city’s land is exempt from taxation.
9. Your local government must have prepared and approved a municipal development plan that has two basic parts:
(a) public uses and public benefits, i.e., a 1,500’ public walkway along a river front (Thames River), public access to the water (Thames River), environmental cleanup, new roads and utility infrastructures;
(b) economic development for new jobs and tax revenue.
10. The plan is approved by the state legislature.
11. The plan is approved by the state executive branch.
12. Both the state legislative and executive branches agree to invest millions of state tax dollars in your neighborhood.
13. Both trial court and appellate courts of your state determine that the legislative branch did not abuse its power, act in bad faith or in an unreasonable manner.

In conclusion, the connection between economic development and the public use clause of the Constitution is a connecting bridge that must be filled with public uses and public benefits, along with economic development. If the only vehicle on that bridge is economic development, i.e., Justice O’Connor’s Motel 6 versus a Ritz Carlton, your plan will be in trouble. The majority clearly stated the law – you cannot take from “A” to give to “B”. That is not what happened in New London, Connecticut. Economic development will come at the end of the development phase after $70,000,000 is spent to clean, reshape and redesign, 90 acres of land all for the public benefit.

Thomas J. Londregan,
Director of Law for the City of New London

I think the point is that there's not really a simple line to be drawn here. A railroad line, bridge, highway, dam, etc., is almost always being done for some economic gain on the part of the whole community. And I guess I don't see why the final transfer to a private entity changes anything, either. Whether the state builds a highway through my yard and operates it publically or lets a private toll-road operator run in privately, I can't see that it makes a heck of a lot of difference in my life. In this case, if the city weren't allowed to give the stolen (er, "lawfully purchased") property to some private developer, presumably they'd just do the old dodge where they lease it to the private developer for 99 years for $100 or some such thing. It wouldn't change much else, right?

This is really bad policy, basically an invitation for corruption. But that doesn't mean it doesn't win local elections, for the same public choice reasons we have farm subsidies and trade barriers.

--John

My take at http://www.rasmusen.org/x/archives/699 is similar to Judge Posner's, as, I expect, would the take of virtually all economists: the holdout problem is the big justification for eminent domain, and the big question is whether that is worth the risk of political abuse.

As Judge Posner said, though, the Court seems to have missed this. "Holdout" here means holding out for extortionary reasons, for more than the value to you, not just holding out for a price equal to its value to you, as in everyday language.

Did somebody try to explain this to the Court? Is it in the briefs? I don't recall seeing it even in the dissents. This may be an instance of a bad decision due to the judges' ignorance of economic theory.

Corey & Mr. Rasmusen:

I'm still not sure that an "extortionary motive" is particularly relevant to the definition of a holdout. If, as Posner suggests, the last farmer refuses to sell an easement needed to complete the railroad for less than $10 million, I'm not sure whether it matters if this is because he thinks he can extort that sum, or just that $10 million is the "idiosyncratic value" to him of not having trains roaring across his farm. The farmer is probably more of a jerk in the first instance, but I see no economic difference. Either way, he is holding out for more money.

I also think that market price is, economically, the appropriate threshold for defining a "holdout," even if it is not "a fair price" vis-a-vis the owner's subjective value, because otherwise if it were set higher there would always be a strong incentive at least to pretend to hold a very high subjective value of one's property.

Whether the economic development plan is sound, or whether it will substantially benefit the city and its population are interesting questions. Let's say that the answer is yes on both counts in this particular case. I don't think that escapes the issue--that eminent domain has been expanded in a way that many people, of all political stripes, are uncomfortable with.

If the government believes it can make better use of your property, then it's apparently entitled to it. It should not come as a suprise that many feel that is a dangerous principle.

Thomas J. Londregan,
Director of Law for the City of New London,

Nice try. You are taking private property that is not blight or slums or otherwise anything other than desirable to a private developer, and helping private interests that lined the pockets of local politicians. There wasn't other property that provided a large enough block of land? Or there wasn't as potentially valuable water front property?

Your project isn't a necessary evil. It is evil. It is government abuse. Put all "holdout" theory you want over it. There is no public use to this property. How libertarains could be happy I haven't the faintest. Libertarians would also oppose the government running shopping malls as landlords.

"When if ever is eminent domain proper?"

When the use is public.

"Is it ever proper when the private property taken is going to be transferred to another private entity rather than being kept by the government for some governmental use, such as a post office or an army base?"

What about a hospital that has board members appointed by the governor but operates as a private entity? My bright-line test would be:"whenever an entity has soverign immunity, it may be the beneficiary of a taking".

"And is the power granted local municipalities by the Kelo decision likely to be abused?"

Not if citizens are actively involved in local politics. Indeed, many polities have empaneled Eminent Domain Commissions to promulgate new safeguards and restrictions on use of the eminent domain power.

As always, what Corey has said is wrong.

I may be wrong, but I get the feeling that most are misreading the Court on this decision. Such that, after it had satisfied itself on the adequacy of the procedures and processes in place in Connecticut and New London safe guarding the property rights of individuals, it had no choice but to find in favor of New London. To do otherwise, would destroy the basic legal principle of the superior dominion of the public and state over all lands in its jurisdiction.

However, the decision was not unanimous and as such, upsets the decision by eliminating the "Rule of 9". As to whether this was a concious act on their part, only they themselves know. What this does now is forces all the States and localities to review the procedures and process's that are in place in regards to Eminent Domain proceedings to guarantee that the basic property rights of the individual are properly safeguarded. Clever tactic on their part.

Coase?s theorem can provide grist for analysis of Kelo (http://en.wikipedia.org/wiki/Coase_theorem). A corollary of the theorem is that in the presence of transaction costs, government can minimize inefficiencies by allocating property initially to the party assigning it the greatest utility.

It could be argued, from a Coasian perspective, that New London had no choice but to confiscate the property of the holdouts (who were driving up transaction costs with incessant litigation) and were justified in allocating the seized property to private developers in order to lure Pfizer and increase the tax base of a community in steady decline.

Coase can also be applied to the qualified support given by Kennedy (http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=US&vol=000&invol=04-108), who supported the decision but made clear that limits to government takings would be in order but *without* specifying what those limits would be and how they would apply. Without ?bright line distinctions? about the limits of government taking authority, transaction costs (principally in the form of endless litigation about who controls property) would go through the roof and government could, ironically, have *greater* incentive to invoke takings to assign property and
reduce inefficiencies. (In other words, in the presence of ambiguous rules about property and ownership, government allocation may be more efficient, in some circumstances.)

Thomas J. Londregan,

I'm wiling to wager that the next case of eminent domain that relies of Kelo will not satisfy the criteria you have laid out.

I'll even bet a $40 bottle of wine on it.

Care to put your money where your mouth is? (It would surprise a lot of people if you did--they would preceive it to be uncharacteristic).

"I also think that market price is, economically, the appropriate threshold for defining a "holdout," even if it is not "a fair price" vis-a-vis the owner's subjective value"

The problem with that is, you are using the term "economically" in a way that excludes the very notion of a "fair price" or an idiosyncratic value. If unique value is deemed subjective and dismissed simply because it is difficult to quantify, then what is the point of even asking?
Many economists (even Posner sometimes) would say that idioscyncratic values must be considered.

Respecting this value may be an incentive to bad faith holdouts, but taking away people's right to consent to sale is an incentive for exclusionary zoning and development in the interests of $$$ alone.

"Economic development will come at the end of the development phase after $70,000,000 is spent to clean, reshape and redesign, 90 acres of land all for the public benefit."

Sounds like a really good deal for the construction industry and any city lawyers who happen to invest in the project. You forgot to mention the new affordable housing project you were building for the 15 displaced families! Will that be near the new park then?

Oh... you mean there aren't comparably priced new housing units in the plan? Ok, then you should add, "filled with no-tax-paying poor people" to your qualifications for developing the area.

"1. Your home must be situated in commercial/industrial zone that has performed poorly with 80% commercial vacancy rate and 20% residential vacancy.
3. Your neighborhood has roads built and designed over 150 years ago"

OK, so if the neighborhood is 150 years old then it predates zoning. So who zoned it commercial/industrial when the commercial vacancy was 4 times as high as the residential one? Was it you Londregan? Maybe your predecessor.

Either way, some of those residents you are booting have been there longer than the zoning laws have existed so its a bit silly to imply that they somehow chose to live in an inappropriate zone.

good!

防水材料

Palooka:

Maybe there should be a line drawn as to when a project is insufficiently public in nature. However, redevelopment projects spur many, many public benefits. Curing urban blight around a downtown can reap great external benefits to the surrounding area and the city as a whole, given how people tend to judge cities by how their centers look and feel. Likewise with waterfront areas. Moreover, a major redevelopment can help be sort of an "anchor tenant" that gives security to other investments coming into the city. A city bears many similarities to a corporation, and, of course, they are often chartered as "municipal corporations."

This is so very different from the national government. There is no discernable original meaning to the "public use" clause in the context of local governments, and so the question then becomes who should define the term in its 14th Am. context. It's not that we shouldn't have zero check on local govts. or that there should be no line between public and private emoluments, just that these matters are best left to state law and courts, given that the states charter the municipalities in the first place.

David: In a democracy, all takings by the government are in some sense for a "public use."

Well there's a democracy I don't care to live in. A "democracy" which can seize anything you have and give it to someone else because (by definition!), what the government does is in the public's best interest will not be much of a democracy in the long run. A reasonably inviolable right to property is essential to freedom. What we have now, (unless states move to curtail), is the right to lease property from the gummint until some developer wants it.

Kelo is not necessarily a "liberal" decision

If you say so. But with liberal judges in favor, and conservatives dissenting, the inference is clear-- if you think property rights are important, vote conservative.

Tom: The local gov'ts consist of elected officials who will lose their jobs if they abuse this power

Another winning utopia. Councilman Stalin kicks grandma out of her home to put up a Starbucks, and her recourse is to vote him out of office in two years? What a great check on government power. I wonder if Starbucks' campaign contributions to the Councilman will make up for that lost vote.

I can't find it now, but someone said, "I don't see what difference it makes who the recipient is, private or 'public'", or something like that. The difference is that you're throwing gasoline on the unholy alliance of private money and public politicians. It's like saying that there's nothing wrong with giving whiskey and car keys to a teenager because he won't necessarily do anything wrong.

It should be abundantly clear that the framers had in mind things like roads. What the framers didn't explicitly say, but which I think or hope they meant, is that land would not be taken without a compelling and otherwise unanswerable need, which a railroad might satisfy but Pzifer most certainly does not. Could we add that stipulation to the flag burning amendment, please?

AND FURTHERMORE.... (hee)

"Public" means the public gets to use the land, not Pfizer gets to use the land. The public gets to drive there, or barbeque there, or catch a plane there, or hear a symphony there, etc.

The "extra tax revenue" which is the nominal justification here is not really in the public's use in the first place-- that revenue will only allow the local government to spend more. Hey, maybe even a pay raise for the mayor, eh? If that revenue, (let alone Pfizer's profit!), were directly distributed back to the local citizenry, then at least we could see a direct benefit to the public.

And that's the least prerequisite which an ED seizure should have.

To respond to Will - I should correct myself regarding Scalia: he finds history as important as plain text in constitutional interpretation. In statutory interpretation, however, he prefers to read the dictionary than the legislative history. There is some inherent inconsistency there, but then again, consistency is too much to expect of any mere mortal.

In my "absurd plain text" posting, I did not address the 3 non-legal questions on which Judge Posner asked us to focus. For what it's worth, I agree with him about the Court's motivation: to stay out of local land-use matters. That seems like a prudent jurisprudential choice, for the most part. There might be grave abuses in the future where the federal courts should and will intervene.

Is eminent domain ever appropriate? Only a property-rights absolutist would say no. Practically, it would be impossible to build roads, parks, airports, subways, etc. or to manage the design of cities without eminent domain. I think the costs of eliminating eminent domain would vastly outweigh the benefits. The "victims" of condenmation are always compensated, and I agree with Posner that they should receive a bit more than the market value (though I would not try to compute their "personal" valuation of the property - this seems almost like Marx's "labor theory of value" to me). The sum above the market price will pay for the owners' relocation expenses and also deter the state from using its takings power too often.

I cannot say that the government must itself use every bit of property that it condemns. What if it condemns land to build a private toll road, a privately-run airport, or a ballpark that will be owned by the team but will add value to the city? All of these seem to be appropriate "public" uses of eminent domain. Again, the "victims" must be compensated, and if a private entity ends up with the property, then it ultimately will pay the cost.

Finally, will the Kelo power be abused? Tough question. O'Connor has a legitimate worry about undue influence in politics. But politicians ultimately want votes, and if the voters rebel against extensive use of eminent domain, it will stop. I would guess that wide-scale abuse will be stopped at the polling place. But maybe I'm too idealistic..

David:

In fairness to Justice Scalia, the two types of interpretation (statute and constitution) are more consistent than they might first appear. I used to be confused about that, as well. The reconciliation lies in the fact that Scalia uses historical context around the framing to demonstrate what the accepted meaning of the terms was at the time of the framing. In a real sense, accurate history serves the same purpose as our modern dictionaries do--modern dictionaries being merely excellent scholarly compilations of the contemporary meaning of words.

While he sometimes is inconsistent in how he refers to this stuff, the idea is not that you look to the minds of the constitutional framers to divine *intent*, but rather to determine the accepted meaning of the terms at the time the phrases were constructed and ratified.

All these issues about takings and compensation. Just one question, were the aboriginals of North America properly compensted for their property? There is something about "superior dominion" that transcends equity and right. Even when the Ordinance of the Northwest Territories spelled it out cleanly and clearly. Opp's! Perhaps I shouldn't have raised this issue.

"I would guess that wide-scale abuse will be stopped at the polling place."

I think not. So long as the development plan is likely to increase the tax base, citizens who aren't directly affected will have reason to approve of it. There will always be orders of magnitude more citizens who stand to benefit from trickle down development benefits than citizens being forced to move at their own cost.

RWS wrote: "While he sometimes is inconsistent in how he refers to this stuff, the idea is not that you look to the minds of the constitutional framers to divine *intent*, but rather to determine the accepted meaning of the terms at the time the phrases were constructed and ratified."

Yes, it's a common misconception that textualism ONLY refers to text. A constitution, which must be read broadly from vague language cannot be read that way. Scalia's textualism is closer to run of the mill originalism than either Scalia or his detractors realize. He is right to emphasize the extraction of the meaning of the text rather than intent, however.
But sometimes, where vague and imprecise language is used, the "intent" or more recently "the public understanding" of a given clause is the only way to extract what that text means.

I haven't had time to read over Kelo and each dissent, but I came across something Thomas wrote. He wrote that the Court has replaced the traditional "public use" test with a "public purpose" test. I think that is a very apt description of what the Court has done. And I do not think public benefit is a very practical way to limit the power of eminent domain. It seems government action will only be limited if their actions are irrational. That is, they cannot conceivably advance some public purpose or benefit.

When eminent domain is used to force someone to sell at a price less than they would voluntarily accept, no matter how much value "the public" thinks they will get from the project they can only get that value by extracting it from the previous owner. As Posner points out, it is a peculiar form of taxation.

The holdout case seems to be an exception. Here the holdout owner is extracting value from the proposed project. Even if the property would normally find a buyer at $100K, and even if the owner had sentimental reasons to value it at $150K, and even if the developer were willing to give the owner $200K for it, the owner still might hold out for, say, $300K simply because the project will be stuck without his land and he therefore has a strong negotiating position. Here the owner's price includes not just the property's value to the owner but also a premium representing his ability to extort value from the developer.

Posner states that the holdout problem is a justification for eminent domain and otherwise devotes his post to showing (using economic reasoning) that in the absence of a holdout there is no other justification.

I would go even further. The holdout problem can be solved without the force of government. Land purchase contracts can be created such that each sale is conditional upon all required plots being sold. This way, there is no "last" seller who can use the developer's sunk investment as leverage to extract a higher price; if there is one seller whose price the developer can't meet, the developer isn't forced to pay for any of them and won't lose his investment. All sellers now have an incentive to bargain collectively in good faith with the developer.

In this day and age of modern finance and agile capital, the only purpose of eminent domain is to give politically connected developers larger profits at the expense of existing landowners.

The notion that eminent domain is a necessary evil is a relic of the past that our progressive founding fathers were not progressive enough to eliminate. It is in fact not necessary, and as the constitutional limits on its exercise become looser and looser, it is becoming a greater and greater evil.

Coase's Theorm and this case:

1. He sought to show how transactions costs (or unclear property rights) prevented efficiency by interferring with what willing economic, profit maximizing person would do. NOT included in his theorm as I recall was the idea that the rules should "force" unwilling participants to engage in the market. In the case of a farmer with cows eating the other farmers' crops, the assumption is that both farmers want to participate in the market. Even if inefficient, Coase never suggested making one farmer keep growing crops.

2. Coase's Theorm has not a thing to do with the definition of Public Use in the 5th Amendment. So it is nice to explain how Coase is applied after the fact. It should not be relevant to the Supreme Court's decision making process.

eddie, Really? Eminent Domain as a non-progressive relic? How would you explain Meig's Field. This was a conversion of a Public Airfield, but dominated by private use (read: a few wealthy users)converted to a public park during the dark hours of the night. ;)

Thanks for the comments, Hummer. Below are my replies.

Your comment: 1. He sought to show how transactions costs (or unclear property rights) prevented efficiency by interfering with what willing economic, profit maximizing person would do. NOT included in his theorem as I recall was the idea that the rules should "force" unwilling participants to engage in the market. In the case of a farmer with cows eating the other farmers' crops, the assumption is that both farmers want to participate in the market. Even if inefficient, Coase never suggested making one farmer keep growing crops.

My reply: I am not sure I agree with your analysis. I believe that Coase can be applied to property rights for certain types of property (e.g., radiofrequency waves) when two or more parties disagree about property ownership and when, through the litigation process, one or both parties are forced to abide by court-sanctioned rules (whether they want to or not).

Your comment: 2. Coase's Theorem has not a thing to do with the definition of Public Use in the 5th Amendment. So it is nice to explain how Coase is applied after the fact. It should not be relevant to the Supreme Court's decision making process.

My Reply: I agree Coase has little to say with respect to the definition of public use. But it does have implications for the just compensation clause of the 5th Amendment, and some jurists may (unwittingly) rely on Coase to decide cases. For example, Coase could argue that just compensation is achieved when the government, working as an arbitrator between two parties that disagree, assigns initial property rights to the party that produce maximum utility (e.g., Google Coase and radiofrequency waves). New London believed (or implied it believed) ? correctly or not ? that assigning property rights to Pfizer and private developers would produce maximum utility for the community of New London, which had been in steady decline.

One never knows with certainty whether or not maximum utility will be achieved. Prospects of maximum utility are usually determined on a case-by-case basis using rational and empirical analysis. Moreover, many predictions by municipalities about future utility wind-up being wrong. In the present case, Pfizer could go bankrupt, or decide to vacate the property later. (That municipalities often issue wrong predictions ? while expressing such predictions with extreme confidence ? reminds me of a little known saying about Trotsky: ?As proof of his foresight, none of his predictions have come true yet.?)

It seems to me that a majority of the Supreme Court issued a decision that does (or could) comport well with the utility maximization aspect of Coase. They seemed to say that in the absence of clearly defined rules about public use, municipalities should be allowed to use eminent domain to assign property rights to the party who has the greatest prospect of producing the greatest utility. Whether SCOTUS meant to do this, or should have done this, is an entirely different matter.

I agree with TRC that Coase is readily applicable in this case. Hummer's distinctions do not mean that Coase somehow does not apply. In all externalities situations, there will be some party that is an unwilling recipient of the other's actions.

I think that transactions costs are higher than some property rights theorists think in redevelopment cases -- thus justifying the use of government reallocation of property rights to create more efficient results. Especially, the value to the community of a blighted area or underdeveloped area being redeveloped can be quite large, and yet the only way to capture all of these little bits of value is through the municipal corporation. I believe that people consent to the potential for a taking by the municipal corporation by locating within its jurisdiction. Different municipalities compete with each other for the optimal level of property rights versus propensity to condemn underutilized properties. The market for property rights (which absolutely exists) and not the federal courts should govern that line for defining "public use."

Well, I haven't heard this suggested yet:

Just compensation is amount of the worth of the property to the taker.

So, for example, in the case of Kelo (once the unconstitutional taking is done) the amount of compensation to Kelo should be the entirety of the tax revenue minus what the Kelo's were paying in perpetuity.

This condition might at least alleviate some abuse.

I should add:

or the market value, whichever is higher

As for public use, I am amazed that people think roads or public utilities are such pure examples. Here in Georgia, it's customary for a road to be routed through a politican's unproductive property, for which they receive a negotiated price, and then they develop the remaining adjacent land. Power companies condemn land for the lakes behind dams, some of which becomes waterfront property for favored executives and complaisant politicians. Any reader of Mark Twain knows about people bribing railroads to create routes through their townsites.

With respect to the valuation issue, we start with the market value -- willing seller, willing buyer -- which is like the opportunity cost. Then there is particular value, the contribution that the land makes to value consumed/produced by buyer/seller beyond the market value. Then there is the monopoly price, that which can be received by the buyer/seller as the result of the forced sale/purchase involving a single seller/buyer. I don't think there's any doubt we want to pay the market value and not pay the monopoly price. The law already is that the value to the seller under eminent domain is not to include value added by the project for which it is taken.

So the question is, how to value the often non-economic value particular to the seller. (Indeed, if we were talking about a theoretical firm, economic value is easily provable and compensable.) At a minimum, the cost of an eminent domain proceeding is available to satisfy the seller. And it is worth something to the buyer not to be seen throwing crippled war veterans out of the houses they've lived in for 88 years. But there is always someone irrational enough never to leave their house (several of them died when Mt. St. Helen's exploded). As always, irrational people end up with what the court gives them.

Considering how the Court "decided" its cases this term, I find the suggestion that they simply didn't want to get involved with the details of local urban renewal projects highly plausible. They don't seem to want to get involved with the details of ANYTHING anymore! Maybe some new blood on the court will help solve that problem.

oops...Bad example-- what Lucas shows is that the property was condemned ONLY because it was such a deal, and that public use restrictions DON'T eliminate all cases of abuse.

Also, I challenge anyone that sees urban renewal as desirable to give examples of sucessful projects w/o eminent domain. Public choice economists made a major contribution by pointing out that failure of markets does not imply that governments can do better. I suggest the corollary is also true, just because there is a governmental failure, does not imply that markets can do better. Sometimes, it's as good as it gets, and changes don't occur until we change inside.

Viewing physical development as a catalyst for building inner communities is development at its best and may be the best way left for lowering transaction/insitutional costs, IMHO. Rather than worry about how to define propert rights and set up markets ala Walras, perhaps we should be thinking of how to make public discourse efficient?

erich

Eminent Domain Superme Court Decision = an oligarchy