If you, like us, went to law school to avoid things like this:
then perhaps this recently-published paper is not going to be your cup of tea.
But seriously, folks, this one might be worth your time, even if you are numbers-challenged, because it is a look at the "holdout" issue from the standpoint of economists.
In "Private Takings," the authors "examine[] the implications associated with a recent Supreme Court ruling, Kelo v. City of New London." From the Introduction:
This paper examines the implications associated with a recent Supreme Court ruling, Kelo v. City of New London. Kelo can be interpreted as supporting eminent domain as a means of transferring property rights from one set of private agents — landowners — to another private agent — a developer. Under voluntary exchange, where the developer sequentially acquires property rights from landowners via bargaining, a holdout problem arises. Eminent domain gives all of the bargaining power to the developer and, as a result, eliminates the holdout problem. This is the benefit of Kelo. However, landowners lose all their bargaining power and, as a result, their property investments become more inefficient. This is the cost of Kelo. A policy of eminent domain increases social welfare compared to voluntary sequential exchange only when the holdout problem is severe, and this occurs only if the developer has very little bargaining power. We propose an alternative government policy that eliminates the holdout problem but does not affect the bargaining power of the various parties. This alternative policy strictly dominates a policy of eminent domain, which implies that eminent domain is an inefficient way to transfer property rights between private agents.
Now admittedly, there are an awful lot of formulae and stuff in this paper that frightens and confuses us. But one essential point comes through loud-and-clear: "[a]lthough it may be the case that the use of [eminent domain] will increase the level of redevelopment and other activities associated with it it is not obvious that this translates into higher social welfare."
What that tells us is that the "if you build it he will come" rationale used to support the A-to-B takings like Berman, Midkiff, and Kelo is, built on a very weak foundation:
If local governments equate higher levels of employment and tax revenue that usually accompany higher levels of redevelopment with a higher level of social welfare, then allowing communities to use ED to promote redevelopment can lead to bad outcomes. For example, if local governments use their power of ED when the holdout problem is not severe, then there will be a negative impact on social welfare compared to voluntary exchange.
Download the entire paper here (pdf).
