An Economic Analysis of Eminent Domain

Abstract

A theoretical analysis of land assembly with and without eminent domain concludes that, contrary to traditional assumptions, eminent domain is not necessarily a more efficient institution than the free market for consolidating many contiguous but separately owned parcels into a single ownership unit. In practice, prices paid under eminent domain may differ systematically from the "fair market value" standard, depending on court costs of buyer and seller. Evidence from urban renewal supports the hypothesis that, due to the structure of court costs, high-valued properties receive more than market value and low-valued properties receive less than market value.