by Andrew Balthrop, a PhD student in economics at Georgia State University and 2011 PERC Graduate Fellow.
PERC's latest visiting fellow is Todd Zywicki, the Foundation Professor of Law at George Mason University and senior scholar at the Mercatus Center. He teaches is the area of contracts, bankruptcy, and law and economics. He is the co-editor of the Supreme Court Economic Review and a frequent commentator on legal issues in print and broadcast media. He blogs at The Volokh Conspiracy.Todd is a 2011 PERC Lone Mountain Fellow researching the political economy of Takings law. We thank him for taking the time to answer our questions. See more of PERC's ongoing Q&A series here.Q: You work is heavily influenced by Gordon Tullock and his contributions to the study of spontaneous orders and methodological individualism. How might Tullock’s work be applied to environmental policy and law?A: Tullock’s central insight is that the cost of government policy is not just the misallocation of resources—using resources for lower rather than higher-valued uses. There is an additional cost—the resources that people use seeking preferential treatment from the government. He refers to these as “rent-seeking” costs and they can be quite large. The lessons for environmental policy and law are important: whenever decisions about resource use are moved from the world of private property and contract to the public domain, there will inevitably be rent-seeking costs as well. Thus, even if government makes wise decisions in the end (which it often does not), there will still be the costs of operating the system. And those costs can be large.Q: While you are at PERC you have been working on a project exploring the political economy of the “Takings” law. Can you offer a brief overview of the government’s eminent domain or Takings power?A: The Takings power permits the government to seize private property for public use so long as it pays “just compensation” for the property taken. This enables the government to seize property to build roads, schools, etc.Q: You have pointed out that law and economic analysis has been invoked to justify increased discretionary power for the government to take private property for public use such as in the case of Kelo v. New London. What is missing from this analysis?A: In Kelo many law and economics scholars have posited that the challenges confronting a private developer seeking to assemble many parcels of land in order to build an office building are identical to those of the government when it wants to build a school or post office. The underlying problem, it is claimed, is a hold out problem that landowners might try to hold out for a premium price, thereby killing the project. I argue that the situations are not analogous. In particular, when building an office building there are many similar alternative sites where the building might be constructed and so as a result the developer can shop among many different parcels of land, thereby eliminating the hold out problem. Governments might have less ability to do that (or perhaps not). So I argue that even if one supports allowing the government to use the Takings power to overcome hold out problems, that does not support using the power for private developers in a case like Kelo. Moreover, there is a second point—to the extent that there are not comparable substitutes in Kelo it is only because the City of New London, in that case, gave Pfizer a bunch of subsidies and benefits to encourage development there. As a result, Pfizer felt compelled to build in New London. But that is merely an artificial distinction among different parcels of land that should not justify using the Takings power to later overcome the hold out problem that prior intervention creates.