Yun-chien Chang on Takings Compensation

How much should the government pay to compensate property owners whose land it has condemned? Legal scholars, jurists, and economists have been debating this issue for centuries. The Supreme Court has interpreted the Fifth Amendment’s value requirement of “just compensation” as requiring “fair market value” compensation – roughly the amount of money that the property could be sold for on the open market. Some critics argue that this standard leads to undercompensation, because many people value their property at higher than the market rate; if you valued your house at the market rate or less, you would probably have sold it already. On the other hand, some economists have argued that even fair market value compensation is too high, because it incentivizes property owners to overinvest in land that is likely to be condemned.

Taiwanese legal scholar Yun-Chien Chang’s new book Private Property and Takings Compensation is an excellent analysis of this longstanding debate. Chang does a first-rate job of assessing a wide range of compensation frameworks put forward by both economists and legal academics. Ultimately, he concludes that fair market value compensation is the least bad available approach, but argues that it should be supplemented with additional “bonus” payments, especially in the case of properties with high “subjective value,” such as homes where the residents have lived for a long time. He also brings to bear a wide range of empirical evidence from US and Taiwanese takings, showing that authorities in both countries tend to undercompensate property owners even relative to the fair market value standard, and that compensation policy is likely influenced by interest group lobbing.

I do have a few reservations about Chang’s analysis. For example, I think he should have included a more extensive discussion of what kinds of characteristics of a property should result in bonus compensation above fair market value. Should churches qualify? Small businesses? Similarly, I would have liked to know more about how the size of the bonuses should be calculated.

As Chang recognizes, the fair market value approach is still highly imperfect and will often lead to undercompensation even combined with a schedule of bonuses – unless the latter are so high that overcompensation becomes common. In my view, the difficulty of coming up with an accurate compensation system strengthens the case for restricting the use of eminent domain to begin with. The more likely government is to provide either inadequate or excessive compensation, the more wary we should be of using eminent domain at all. Chang’s book would have been even stronger had he given more consideration to the relationship between the problem of compensation and the problem of deciding when government should be allowed to condemn property in the first place.

That said, this is the best book on takings compensation in a long time, if not ever. If you have any serious interest in the subject, you should definitely read it. The only really significant flaw is the inflated price tag of over $100 for a book that is less than 200 pages. Sadly, only libraries, academics with generous expense accounts, and the very wealthy can afford to buy it. That’s unfortunate, because this book deserves a wider audience.

I am tempted to suggest that the government should condemn copies and then distribute them at a reduced price in order to promote the “public purpose” of improving understanding of eminent domain compensation! Perhaps the publisher will eventually put out a cheaper paperback edition. In the meantime, if you are interested in takings compensation, you should at least borrow the book from a library even if you can’t buy it.

CONFLICT OF INTEREST WATCH: I got a free review copy of the book, in part because I am editing a different volume for the same publisher. I don’t think this affects my judgment of the book, and normally I wouldn’t even mention this kind of thing as a possible conflict of interest. In this case, I err on the side of caution because of the combination of the high price and my relationship with the publisher.