Economic Justifications for Kelo?

A friend who is a professor at another law school sends along this request:

I hope you don't mind another effort to pick your brain as I compile materials for my Law & Econ class. For takings, I'm assigning Thomas Merrill's 1986 article on "public use," and I'm trying to add a few short economics-minded discussions of Kelo. First, I was planning on assigning your and Eugene's blog posts on Kelo.

Second — and here's my question — do you know of any pro-Kelo articles / blog posts that are economics-minded? Most of the pro-Kelo stuff I've seen is either (1) "economic development is good, so it's 'public use'" or (2) the outcome in Kelo was dictated by precedent. I'm not too interested in those points; I'd like an economics-minded argument for a broad construction of "public use." If you don't know of any such pro-Kelo items, I'd settle for a pre-Kelo economics-minded argument for a broad construction of "public use."

I checked with Eugene and neither he nor I have come across anything along these lines in the blogosphere. If any readers have seen any economic analysis of Kelo that makes an economically-sophisticated argument in favor of a broad construction of Kelo, please send me an email with the link or post it in the Comments. If anyone comes up with anything, I'll post the links.



Two people have contacted me with their arguments for an economic defense of Kelo, here and here.

Lee Kane (mail):
This is not to answer the question, but I'd be interested to see any discussion on eminent domain being used to take non real property. Could it be used, for example, to seize ownership of a a copyrighted song for "public good," etc.?
7.4.2005 6:03pm
rholtmeyer (mail):
Doubtful. Although the Constitution lists property as something that can be taken by eminent domain, I can't think of any case or situation that any government sought to expropriate personal or intellectual property.
7.4.2005 6:54pm
PG (mail) (www):
The issue of eminent domain for non-physical property was discussed here.
7.4.2005 7:37pm
Eric Anondson (mail):
I don't have anything specific to send your way, but as far as economic analysis of the powers Kelo hands to municiple authorities, look to studies of European urban planning. The powers the European cities have for urban planning make what Kelo opens up pale in comparison. As I said, you'd probably need to look into the field of urban planning to find much that would be pro-Kelo in economic analysis.
7.4.2005 8:50pm
aslanfan (mail):
The U.S. condemned ships during WWII.
7.4.2005 9:36pm
There is a good economic argument for eminent domain in Richard Epstein's opinionjournal article -- the "holdout" problem. The argument is that if a developer needs to buy 100 parcels of land to make an investment work, and the first 99 landowners sell at market price but the last 1 holds out for more, then the government should block the holdout.

Note that this argument is pro-eminent domain but not pro-Kelo; Epstein's point is precisely that the facts of Kelo did not fit the economically-justifiable point of eminent domain. I'm sure your law professor friend can assume a different set of facts arguendo and then use the holdout problem as an argument in favor of a broad construction of public use.
7.4.2005 9:40pm
J.Maestro (www):
It might be fun to explore the academics of this -- though I personally equate this variety of "urban planning" with old fashioned "command economy" systems. That is, I expect to see very expensive projects that yield only marginal benefits (except for the well-connected who tend to feather their nest quite well in these systems).

But even if the economic case for "public benefit" takings is solid -- I mean really solid -- would that be enough to rehabilitate the Kelo opinion? The holding creates a government power that is otherwise limited by the text of the ratified Constitution. I don't think a judge should be able to do that, even in furtherance of "good" public policy prescriptions.
7.4.2005 11:05pm
First, Kelo really didn't create anything. It extended precedents that were relatively particular (Berman, Midkiff) to a general proposition of law. And, Kelo was pretty narrow with its pretext disclaimers. However, it follows pretty clearly in the footsteps of Williamson Optical and Carolene Products, where the court said they weren't interested in economic arguments but prioritized democratic deliberation. If the court were remotely in the economic implications of eminent domain they would have reversed the Conn. Supremes and required some sort of means-end fit or higher basis of scrutiny.

Interestingly, the tax base may increase with the Pfizer campus, but it's pretty clear that property rights bring about a lot of "hidden capital" and, failing that, home equity borrowing can sure lead to a lot of spending. Berman and Midkiff probably did benefit -- slum removal and the creation of fee simple estates, respectively probably did make both societies better off. But, if society benefits in the strange cases, nobody's hurt in requiring legislatures to meet it in all of them.

I disagree with the decision, but haven't lost sleep over it. The personal experience of Suzette Kelo is no different from renters whose buildings go co-op; owning real property matters legally, but not psychologically, I would think. Something can still be "yours." So, the poor have been dispaced for the rich all the time. I just can't get over Van Orden. (What is wrong with Justice Breyer?)
7.5.2005 12:30am
UChicago Law Student:
Judge Posner doesn't defend the Kelo majority's approach, but he does offer some potential defenses for the result in this blog post. As an earlier comment noted, the holdout problem is the primary economic argument employed to defend eminent domain. Some portions of Epstein's Takings might make for good reading on this score. But I doubt you'll see any law and econ prof defend the majority opinion itself, as it largely ignored the holdout angle.
7.5.2005 12:41am
CharleyCarp (mail):
WRT Takings of personalty, the best example I know is the choses-in-action taken in Abrahim-Youri v. United States, 139 F.3d 1462 (Fed. Cir. 1997). There was some real property as well, but you'd never know it from the opinions, or the SG's brief in opposition to our petition for cert.
7.5.2005 1:14am
CharleyCarp (mail):
Having linked to it, I just reread the opinion, and Judge Clevenger's concurring opinion. You also wouldn't know from the opinions, especially the latter, that some claimants had claims that arose from commerce within the US, e.g., the University of Northern Colorado's contract claim for unpaid tuition for exchange students.
7.5.2005 1:26am
CharleyCarp (mail):
Maestro, the constitution does not literally limit the exercise of the eminent domain power to public uses. The limit is judge-made, and based on the due process clause. Davidson v. New Orleans, 96 U.S. 97 (1877).

It's an emanation from a penumbra.
7.5.2005 1:33am
susanna (mail) (www):
John Hindraker from Powerline has a new article up at the Weekly Standard that says maybe Kelo isn't so bad.
7.5.2005 9:48am
I think that an economic argument in favor of Kelo is going to be very difficult, because the "holdout" problem can be dealt with by using options.

A good example is with the construction of a pipeline. Being long and skinny, the number of local government jurisdictions that a pipeline traverses is of the same order of magnitude as the number of property owners, so paying graft to local politicos is not efficient enough to be practical. (You get the same sort of bad behavior where an individual community's politicians will play the "holdout" game as rent-seeking.) So pipeline companies map out various routes and buy options from the property owners along the way. When they assemble one acceptable route, they abandon the options on the other routes. So holdouts get nothing (not even the option premium) and those holding out must not be holding out for tactical reasons. The pipelines get built over land freely sold at a market price, and our economy soldiers on.

The economic analysis would suggest that without eminent domain, it's the landowners who sell the options which ultimately get abandoned who earn windfalls. With eminent domain, it's the politicians who get paid off somehow. And it even suggests a market pricing of the graft -- if it's cheaper to buy options and then abandon them than to grease politicos' palms to use eminent domain, then rational actors will use the option method.

cathy :-)
7.5.2005 12:42pm
Jack Diederich (mail) (www):
I think Kelo stinks, but as a matter of economics there is always an upside to making things cheaper or more expensive for someone. So I threw together a little guy on how Kelo compliments the effect of property taxes in causing turnover in real estate.
7.7.2005 1:22am