Forcing the Invisible Hand: The “Public Use” Conundrum–Part I

The Supreme Court’s recent decision in Kelo v. City of New London sanctioned the use of eminent domain authority for private development. This decision was the culmination of a line of cases, each of which gradually eroded the public use constraint articulated in the Fifth Amendment. The first uses of eminent domain, at the time of the nation’s founding, equated public use with the provision of an economic public good. This series of essays supports a reversion to this conception of public use by describing the economic underpinnings of the authority and by countering what it deems to be the primary arguments in favor of its expansion: namely, that eminent domain use for private development is justified because it produces positive externalities and that such use is a necessary solution to the holdout problem.

Tanya Abrahamian is a graduate of Georgetown University Law Center and is currently a law fellow working on environmental/energy policy.

Introduction

Given today’s intense political and ideological divide, the current alliance of disparate anti-eminent domain interests appears to be an anomaly. The political tinge of eminent domain as simultaneously anti-environment and anti-property rights has rendered its analysis a fertile prospect for both partisans and academics. Yet, although there is much scholarship on the topic of eminent domain, most is dedicated to determining the adequacy of compensation, and any discussion of the “public use” constitutional requirement fails to recognize the economic underpinnings of the authority. Eminent domain is, at its most basic, the legal right to acquire property by compulsion rather than by market forces.[1] It is an authority with overt economic implications.[2] When invoked, eminent domain allows the government to condemn property, or force sale of the property, at an appraised “fair” market value despite the property owner’s rejection of the highest bid.[3] This authority may be delegated by state legislatures to private corporations “to be exercised by them in the execution of works in which the public is interested.”[4]

This power is constrained, however, by the Fifth Amendment, which states, “Nor shall private property be taken for public use, without just compensation.”[5] The development of eminent domain authority has therefore focused on the definition of “public use” and “just compensation.” The Supreme Court’s broad deference to state legislatures has essentially rendered these limitations moot. In this deference, the Court has sanctioned a broad interpretation of “public use” that permits the transfer of eminent domain authority to private actors when any public benefit can be shown.[6] Given the amount of literature on the “just compensation” requirement, this series of essays will only offer a brief description of the issue in illustrating the holdout problem.[7] This series will then present evidence that “just compensation” is not “just,” but results in under-compensation. It will also do something neglected by most scholarship on the topic—it will relate the just compensation requirement with the public use requirement and demonstrate that current inefficiencies in the use of eminent domain are due to a failure to account for externalities.

This series of essays adopts the “narrow” view of eminent domain, maintaining that “public use” requires either “public ownership or public access.”[8] It will argue that this understanding of the term “public” should be constrained in scope to apply only to economic public goods, thereby barring the use of eminent domain authority by private entities. It will consequently reject the currently-accepted “broad” view of eminent domain authority that justifies the use of the authority for private purposes that produce any tangential public benefit.

Part II of this piece to follow.

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[1] Patricia Munch, An Economic Analysis of Eminent Domain, 84 J. Pol. Econ. 473, 473 (1976).

[2] Id.

[3] City of Buffalo v. J.W. Clement Co., Inc., 28 N.Y.2d 241, 258 (1971) (requiring the property owner to be indemnified so that he may be put in the same relative position he would have been in had the taking not occurred).

[4] Boom Co. v. Patterson, 98 U.S. 403, 406 (1878).

[5] U.S. Const. amend. V; Penn Central Transp. Co. v. New York, 438 U.S. 104 (1978) (finding that takings clause of the Fifth Amendment was applicable to states).

[6] Kelo v. City of New London, 545 U.S. 469, 482-3 (2005) (rejecting a bright-line rule for a broad interpretation of public use to deference to the legislatures in determining what public needs justify the use of takings powers).

[7] E.g., John J. Cardigan et al., An Experimental Study of the Holdout Problem in a Multilateral Bargaining Game, 76 Southern Economic Journal 444, 444 (October 2009) (defining the holdout problem as a situation where an individual “strategically delay[s] agreement in an attempt to capture a greater share of the surplus created by the exchange”).

[8] Daniel B. Kelly, The Public Use Requirement in Eminent Domain Law: A Rationale Based on Secret Purchases and Private Influence, 92 Cornell L. Rev. 5 (2006).

One comment

  1. […] definitions of “public use” and “just compensation.” As explored in previous pieces, found here and here, ambiguity in these terms has led to an expanding use of government’s taking […]

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