Eminent Domain and Efficient Land Assembly

Abel Winn and Matthew McCarter, George L. Argyros School of Business and Economics and Chapman University

Eminent domain explicitly abrogates free choice with the justification that free choice would fail to efficiently coordinate decentralized knowledge in the case of land assembly. The purpose of the research proposal is to compare the efficiency of land assembly under regimes of eminent domain vs. secure property rights.

Prior laboratory experiments have demonstrated that land assembly under secure property regimes is not perfectly efficient, though it is highly efficient in the presence of seller competition. It is tempting to conclude on these grounds that eminent domain is an economically justifiable policy. Yet we must remember that while experimental researchers have examined secure property rights and found imperfections, they have not examined eminent domain at all.

Society does not face the choice of imperfect markets versus perfect governments. This proposed study would provide more context in which to place our knowledge of inefficiency in land assembly. This study is a first to experimentally test the effectiveness of eminent domain at overcoming the holdout problem. This study could prove useful to policy makers. Knowing the strengths and weaknesses of eminent domain will be useful to state and local government in crafting their legal framework for land development.