Research Handbook on Economic Models of Law

Research Handbook on Economic Models of Law

Research Handbooks in Law and Economics series

Edited by Thomas J. Miceli and Matthew J. Baker

One of the great successes of the law and economics movement has been the use of economic models to explain the structure and function of broad areas of law. The original contributions to this volume epitomize that tradition, offering state-of-the-art research on the many facets of economic modeling in law.

Chapter 1: Land assemblage: efficiency and equity in public-private projects

Zachary Grossman, Jonathan Pincus and Perry Shapiro

Subjects: economics and finance, history of economic thought, law and economics, methodology of economics, law - academic, law and economics


Because the market frequently fails to efficiently allocate parcels that are complementary in value, eminent domain is often used to assemble large land parcels from many individually-owned contiguous parcels in a public-private partnership for redevelopment. While the process can be contentious, particularly if the property is taken to be given to private developers, efficiency of land use alone might justify a community interest in facilitating the transition of ownership. The common practice, while it is expeditious, suffers from two potential failings. The first is a matter of efficiency. The evaluation of existing holding by market value may undervalue its current use by a considerable amount. Without a market test, the newer use created by the redevelopment assemblage is not guaranteed to be more valuable than what it replaces. The second is a matter of fairness. It is common practice for communities to pay landowners the market value of their property when it is taken. Even if the use of the assembled properties is efficient, current market value can be considerably smaller than the ownersí personal value. In this way redevelopment using eminent domain assemblage can be inequitable. The root of the efficiency-equity problem stems from the inability to know personal value. In what follows we provide background on the assembly problem and discuss why and how eminent domain has been used to overcome market failures.

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