Subjective Value, Alternatives to Eminent Domain, and the Colorado Military Condemnations:

At Concurring Opinions lawprof Kaimipono Wenger raises some interesting points in response to my post on the US Army's efforts to use eminent domain to take over 400,000 acres of land belonging to Colorado ranchers in order to build a new training ground for troops. In particular, he questions my suggestion that the Pentagon should build its new training facility land already owned by federal government rather than using eminent domain, and my argument that - if eminent domain is used - the ranchers should be compensated for the "subjective value" they place on the property as well as its market value.

I. Using Land Already Owned by the Government as an Alternative to Eminent Domain.

Wenger argues that I am wrong to believe that the new facility should, if possible, be built on land already owned by the government rather than on property taken from unwilling private owners. He notes that, in some instances, using land already owned by the government will be inefficient or excessively costly. However, I did not claim that land already owned by the state should be used in every conceivable scenario. To the contrary, I noted in my original post that using eminent domain might be the way to go if "the [privately owned] Colorado site really is superior to any potential alternative." My argument was merely that using government-owned land or land purchased from willing private sellers should be preferred to eminent domain if other considerations are relatively equal. I would also add that some degree of efficiency could be sacrificed to avoid using eminent domain in cases where the harm to private owners is very great or if the efficiency gains of eminent domain are outweighed by the costs of the takings process itself (including litigation, enforcement, and opportunity costs, among others).

II. Compensation for "Subjective Value."

Wenger also questions my suggestion that the government should compensate the Colorado property owners for their loss of "subjective value" - the value that they attach to their property over and above its market price. Current legal doctrine requires the government to pay only "fair market" value to owners who lose their property to condemnation. This approach leads to the infliction of uncompensated losses on owners and in some cases leads to the use of condemnation in cases where the benefits to the government are actually smaller than the losses suffered by the owners (if subjective value is taken into account).

Wenger does not deny any of the above. But he argues against compensation for subjective value because "[t]hat would be a major change in takings law, and would affect vast numbers of takings, since many property owners attach some subjective value to their property." Wenger seems to assume that I advocate having courts try to ascertain and require compensation for an exact subjective value for each owner in every condemnation.

Trying to calculate subjective value on a case by case basis would indeed probably be unworkable. But there are many other ways to provide at least some compensation for subjective value. For example, courts could require the government to pay a set premium (say 10-15%) above the market price of condemned property, as is done in Britain and Canada. Alternatively, it could establish rules of thumb regulating the size of the required premium based on the type of property being condemned(perhaps more for homes and small businesses than for investment property). Even if we reject all potential judicial efforts to require compensation for subjective value, one could still argue that the legislature should undertake to provide such compensation on its own initiative.

The fact that the right level of compensation for subjective value is difficult to ascertain and that such compensation not required by current American legal doctrine, doesn't mean that we should simply assume that that value is zero and leave it completely uncompensated. As Wenger himself puts it, "[P]roperty owners often attach subjective value to their property, and thus the value to an owner is often greater than market value. That's why the property is still in the hands of _these_ owners, after all."

That said, I am myself skeptical of theories that claim that increasing compensation can solve all the problems created by eminent domain. For my explanation of that skepticism, see this article (pp. 214-18). In many situations (as I explain in the article), the difficulties involved in estimating and compensating subjective value strengthen the case for abjuring the use of eminent domain altogether.

UPDATE: Wenger also raises some other issues, mostly related to my own uncertainty about whether the potential Colorado taking is justified on grounds of its utility to the Army. I can't address them because I lack the needed expertise on the factors involved in choosing locations for military training facilities. As I noted in the original post, I chose not to discuss them precisely because "I lack the expertise to judge."

Wenger also misinterprets my post as implicitly advocating some sort of general rule of takings based on an analysis of equity and efficiency. No such general point was intended, though I can to some extent see how my original post could be misinterpreted in this way.

Related Posts (on one page):

  1. Subjective Value, Alternatives to Eminent Domain, and the Colorado Military Condemnations:
  2. U.S. Army May Use Eminent Domain to Take 418,000 Acres of Colorado Ranchers' Property: