Environmental & Natural Resource Economics 10th Edition by Thomas Tietenberg,Lynne Lewis

Exercise 1

Should Landowners Be Compensated for "Regulatory Takings"?
When environmental regulations, such as those protecting wetlands, are imposed, they tend to restrict the ability of the landowner to develop the land subject to the regulation. This loss of development potential frequently diminishes the value of the property and is known in the common law as a "regulatory taking." Should the landowner be compensated for that loss in value?
Proponents say that compensation would make the government more likely to regulate only when it was efficient to do so. According to this argument, requiring governments to pay the costs of the regulation would force them to balance those costs against the societal benefits, making them more likely to implement the regulation only where the benefits exceeded the costs. Proponents also argue that it is unfair to ask private landowners to bear the costs of producing benefits for the whole society; those costs should be funded via broad-based taxes on the beneficiaries.
Opponents argue that forcing the government to pay compensation in the face of the severe budget constraints, which most of them face, would result in many (if not most) of these regulations not being implemented despite their efficiency. They also argue that fairness does not dictate compensation when the loss of property value is due to simply preventing a landowner from causing societal damage (such as destroying a wetland); landowners do not have an unlimited right to inflict social damage. Furthermore, landowners are typically not expected to compensate the government when regulation increases the value of their land.
Current judicial decisions tend to award compensation only when the decline of value is so severe as to represent a virtual confiscation of the property(100 percent loss in value). Lesser declines are typically not compensated.
Disagreeing with this set of rulings, voters in Oregon in 2004 approved Measure 37, which allowed individual landowners to claim compensation from the local community for any decrease in property value due to planning, environmental, or other government regulations. After witnessing the effects of that measure, voters passed Measure 49 in 2007, which had the effect of narrowing the impact of Measure 37.
Which sets of arguments do you find most compelling? Why?