Essay

The Hidden Function of Takings Compensation

To date, scholars have justified the constitutional mandate to pay compensation for takings of property on the intuitively appealing grounds that fairness demands recompensing aggrieved owners; on the basis of a belief that government that fails to pay will suffer from “fiscal illusion” and take excessively; or due to the need to neutralize politically powerful property owners who would otherwise foil socially beneficial projects.

This Essay offers a new explanation of the role of takings compensation in ensuring good government. Inspired by public choice theory, we argue that takings compensation is intended to reduce the incentives for corruption by limiting the ability of politicians to profit from takings. Specifically, we show that mandating compensation reduces the funds self-serving politicians can extort from property owners. At the same time, mandating compensation permits publicly oriented politicians to continue pursuing socially beneficial projects.

This justification for compensation also yields important insights into the optimal structure of takings compensation. First, current incentives to use eminent domain excessively in the service of private developers cannot be blunted by modifying compensation policy. These undesirable incentives can be reduced or eliminated only by a separate policy that charges developers for the benefits they receive. Second, overcompensation is even worse than under-compensation insofar as corruption is concerned. For this reason, we should look skeptically at laws requiring the payment of fixed percentage bonus above market value to property condemnees. Additionally, market value compensation might be attractive, notwithstanding its shortcomings, where judges are thought systematically to overrate the subjective value owners attach to their properties. Third, our theory demonstrates that a private insurance system for compensating property owners for takings is not only impractical but undesirable, as it, too, could encourage political corruption.

The Invisible Hand in Legal and Political Theory

Theorists have offered invisible-hand justifications for a range of legal and political institutions, including the separation of powers, free speech, the adversary system of litigation, criminal procedure, the common law, and property rights. These arguments are largely localized, with few comparisons across contexts and no general account of how invisible-hand justifications work. This essay has two aims. The first is to identify general conditions under which an invisible-hand justification will succeed. The second is to identify several theoretical dilemmas that arise from the structure of invisible-hand justifications and that cut across local contexts. These are the dilemma of norms, which arises because norms of truth-seeking, ethical action or altruism can both promote and undermine the workings of the invisible hand; the dilemma of second best, which arises because partial compliance with the conditions for an invisible-hand justification can produce the worst of all possible worlds; and the dilemma of verification, which arises where theorists claim that an invisible-hand process functions as a Hayekian discovery procedure — a claim that is empirical but pragmatically unverifiable.

Originality

In this Essay we introduce a model of copyright law that calibrates authors’ rights and liabilities to the level of originality in their works. We advocate this model as a substitute for the extant regime that unjustly and inefficiently grants equal protection to all works satisfying the “modicum of creativity” standard. Under our model, highly original works will receive enhanced protection and their authors will also be sheltered from suits by owners of preexisting works. Conversely, authors of less original works will receive diminished protection and incur greater exposure to copyright liability. We operationalize this proposal by designing separate rules for highly original works, for works exhibiting average originality, and for works that are minimally original or unoriginal. We illustrate our rules’ application by showing how they could have altered court decisions in classic copyright cases in a socially beneficial way.

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