The Economics of Takings and Compensation When Land and Its Public Use Value Are in Private Hands

Before governments can "take" private property, property owners can often alter the public use value. This article models this capability and studies its implicationsf or takings compensation. Tying compensation to private land values generally does not prompt efficient land use practices. Tying compensation to land's public use value prompts efficient landowner behavior, but at a high budgetary cost to the government. When there are deadweight costs of government funds, efficient regimes deliver land use incentives at minimum budgetary cost. Negligence compensation does so by affording landowners positive compensation only if they act efficiently to protect their property's public use value.