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Takings and Givings

The Analytics of Land Value Capture and Its Symmetries with Takings Compensation

Perry Shapiro

May 2012, English

In this paper, Perry Shapiro examines the efficiency of value capture by analyzing the symmetries and asymmetries between givings and takings. Ideally, if a government asks landowners to reimburse it for the costs of infrastructure improvements based on the associated increases in land values, it will also compensate landowners for reductions in land values that stemmed from its actions. The U.S. Constitution prohibits takings without just compensation, but it is silent on the issue of givings without reimbursement. This legal tradition has roots in the historical desire to protect private property rights from the power of the state. From an efficiency standpoint, the takings clause reduces the incentive for the government to take more land than it needs for public projects, but there is no parallel policy concerning public benefit recovery.

In view of this imbalance, Shapiro proposes a set of rules (which he terms the ideal mechanism) for deciding what damages are compensable, what benefits are recoverable, and how compensation payments and recovery charges can be determined. Using the construction of a road as an example, he illustrates the shortcomings of market value compensation for land takings and ad valorem property tax recovery for public infrastructure provision. He then suggests two alternatives: (1) a compensation assessment method based on the increased value of non-taken property; and (2) a strong Pareto mechanism based on an auction theory. He claims that both mechanisms would lead to efficient and fair outcomes for givings reimbursement and takings compensation.

This paper was presented at the Lincoln Institute’s annual Land Policy Conference in 2011 and is Chapter 3 of the book Value Capture and Land Policies.