B Y D AV I D G O R D O N
Expropriation: Are Holdouts Really a Problem? Owners have a right to gain economically from projects proposed for their land.
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minent domain (expropriation in Canada) gives the government the power to take over private property for public use. A popular argument that this interference with private property is needed goes like this: We can’t measure subjective utility, but we can take increases in wealth as a rough proxy for increases in utility. (This assumption is mistaken, but I won’t get into that here.) Suppose, on this assumption, that some public project will add a great deal of wealth to the economy. Unfortunately, someone owns a small parcel of land necessary to get the project underway. Often, a little old lady who refuses to sell her house, preventing a road from being built, is given as an example of the problem. You might be inclined to dismiss this argument immediately. Wouldn’t it be unfair to the old lady to take away her house, just so total wealth goes up? But supporters of the argument have an answer. They say, “Can’t we give the old lady enough money so that she is as well off as she was
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before? Then, the economy is better off and she is no worse off.” I have never found this argument persuasive. I think it suffers from a crucial flaw. Before explaining what that flaw is, let’s look at a statement of the argument by the distinguished classical liberal legal scholar Richard Epstein. In his book Simple Rules for a Complex World (Harvard, 1995), he says: “Often the government needs to obtain material resources from individuals in order to supply services to the public at large. . . . Holdout and coordination problems preclude that consensual solution for certain key assets, such as specific parcels of land needed for the construction of a fort or a public road. This problem is best met by government taking with payment of just compensation. Ideally, the individual citizen is left indifferent to the loss.” What is the crucial flaw in the argument? You might at first think
that it is the failure to take account of the non-monetary value of her house to the old lady. What if it has great sentimental value to her; maybe it is the house she has lived in all her life. Or what if the property taken is a religious shrine? To offer compensation based only on the real estate value seems unfair. This is an excellent point, but it isn’t the one I want to concentrate on here. The argument is still flawed, even if you disregard this type of value. Even if the owner attaches no sentimental or religious value to her house, but views the takeover in a strictly dollars-and-cents way, there is a problem that involves the compensation that is offered. The problem is this: When it is said that the owner has to be made as well off as she was before, something important is being disregarded. The property is now much more valuable than it was before the project to
“If you have a right to certain property, then it can’t be taken away from you and that is that.”
