Thanks for responding. With regard to # 2, you are completely right. Re-reading my comment, I realize it implies that you were inaccurate to describe the problem as a transaction cost, which was not at all my intention. I just hoped to clarify the issue, because some comments (e.g., TJ’s 2nd point) seem to address a different kind of transaction cost issue.

I think # 4 is exactly the issue. The Didden case (which I’m not at all familiar with, other than Sotomayor-related commentary) seems to highlight this kind of corruption. (This is not to say that public-use takings don’t invite corruption. It is fairly common for local governments to use eminent domain to e.g., create a park that just happens to create a right-of-way or extra parking for the business of a political supporter.)

Maybe the issue is a line-drawing problem. Eminent domain invites corruption, but is sometimes necessary. If you are creating an a priori rule that authorizes but regulates eminent domain, when should it be allowed? Only for actual public use? Any clear public benefit? Any potential public benefit?

I think an actual public use requirement is a fairly easy-to-apply standard that intuitively seems likely to allow eminent domain when truly necessary, and also to substantially limit corruption. [I would also argue that this is right as a matter of Constitutional interpretation, but then I would be fighting the hypothetical, so I won't.]

1. I don’t know enough about the underlying materials in Kelo to comment on the opinion. My understanding it that it was just applying existing precedent, but I’m not clear about the original understanding of the Taking Clause.

2. A bilateral monopoly (or holdout) is often described as a transaction cost issue, but I have no quarrel with calling it a collective action problem.

3. Th harm to the property owner from a taking is just as severe if the government takes their house for a park or bridge. So there must be something about a taking for private development that is different.

4. Perhaps the answer is that allowing developers to benefit from takings opens the door to more corruption (as already occurs with zoning or permits).

5. I’ll concede that Detroit or Stockton may not get many offers for the development of empty housing developments (or they may not want to spend the money buying up the empty lots.) But if they did have an offer and the money, could they really do worse by trying it out?

In other words, let us assume away what pisses off almost everybody who was outraged by the Kelo decision: That it was, in fact, wrongly decided, and blatantly so.

1. You frame the cost as someone being cheated out of the value of their homes. Implicit in this framing is that it is an occasional or accidental thing. But it must be recognized that every condemnation situation involves undervaluation. If the compensation being offered were not less than what the property owner’s subjective value, then the house would have been sold already, without requiring condemnation.

2. You suggest that the benefit is removing “empty houses that just sit there”; and suggest that a voluntary transaction is being precluded by transaction costs. But condemnation is highly unlikely to reduce transaction costs when only one single property is involved–it creates more transaction costs to go through all the bureaucratic formalities of condemnation than to execute a voluntary sale. What condemnation really allows is the ability to force an unwilling owner to sell and thereby bypass owner choice. In other words, houses don’t usually “just sit there” because it is too hard to find the owner, or too expensive to hire real estate agents. Houses sit there unsold because the owner is asking for $1 million, and condemnation forces him to sell it for $100,000. Lowering the sale price is not a reduction in transaction costs.

1. Property rights, like other individual rights enshrined in the constitution, are if not sacrosanct, at least due particular deference that takes them out of a traditional cost/benefit calculus. We often say that rights of bodily integrity trump social interests in violating them, even if we are confident that society would be better on-balance if the rights were disregarded (e.g., Rochin v. California; see Dworkin’s notion of rights as trumps).

2. The government is not to be trusted with reallocation because they are at least inefficient (subject to interest group pressure, which appears to have been the case to an extent in Kelo) and possibly even corrupt (susceptible to self-dealing, which appears to have been the case to an extent in Didden). So even if you’re a utilitarian about such things, you may still be a takings skeptic if you don’t have faith in the government as an economic actor.