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of eminent domain. One common reform is to limit takings of property for economic development to circumstances where the property being taken is blighted. Whether this makes sense from an urban planning perspective is debatable. But from the vantage of property owners, a blight limitation, at least in theory, enhances protection against government takings, as the property owner has it within his or her power to prevent an economic development taking simply by keeping the property sufficiently well maintained to avoid a finding of blight. To be sure, some definitions of blight are so capacious that it is doubtful that they provide much protection, and blight findings have historically been manipulated to the disadvantage of minority groups, as highlighted in Justice Thomas’s dissent. In addition, there is some indication that state courts, chastened by the backlash against Kelo, will become more vigilant in policing proposed takings to make sure that there is a genuine public need and that all applicable legal requirements have been satisfied.42 In short, compulsory acquisitions are likely to be more tightly rationed after Kelo than they were before.

Just Compensation

Federal and state constitutions also require that the owner be given “just compensation” for any compulsory acquisitions that take place. If just compensation meant complete indemnification— compensation so complete that the owner is indifferent between keeping the property and getting the compensation—then all concerns about explicit takings would presumably go away. Property owners would be just as happy with the compensation as with the

42.See Norwood v. Horney, 853 N.E.2d 1115 (Ohio 2006) (holding that taking of nonblighted property for economic development is not a public use under the Ohio Constitution); Centene Plaza Redev. Corp v. Mint Properties, 225 S.W.3d 431 (Mo. 2007) (en banc) (limiting definition of blight to preclude taking of functioning business property).

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property and would have no objection. But the law has never required complete indemnification for takings. Instead, the general rule is that the owner receives the “fair market value” of the property taken—what the property would trade for in an arm’s length transaction between a willing buyer and seller just before the taking by the government. The fair-market-value standard systematically undercompensates the owner, in two respects.

First, the market-value formula deprives the owner of the subjective premium the owner attaches to the property. There are many reasons why owners of discrete assets value them more highly than does the market. Psychological attachment is one. Owners of homes, in particular, often come to regard them as an extension of their selves. Personalized or idiosyncratic modifications are another. A home owner may have installed access ramps for a disabled child, or a factory owner may have configured the interior space to accommodate a unique production process, and the market will not value these modifications at cost. Loss of community ties or business good will is yet another reason. A restaurant or dry-cleaning shop may be uniquely dependent on its location for its customer base, such that being forced to move even a few blocks would put it out of business. Moving and relocation costs (including legal fees) are potentially a final reason. Eminent domain effectively expropriates the owner’s subjective premium, whatever its source. This is a potent source of opposition to compulsory acquisitions.

Second, the market-value formula means that the condemning authority captures what may be called the assembly gain from the taking, and shares none of this with the owner. Eminent domain typically entails the assembly of many contiguous parcels of land, or the acquisition of a parcel that has some unique value to the condemning authority. Thus, the value of the assembled tract after the taking is greater than the sum of the parts before the taking, putting aside the value of any improvements. The assembled tract has scarcity value—it cannot be readily found in the market—for otherwise it would not be necessary to use eminent domain to put

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it together. Under the market-value formula, whereby the condemning authority pays the market value of what it takes, not what it gets, all of the assembly value is captured by the condemnor. This strikes many landowners as unfair, particularly in economic development takings, where the ultimate beneficiary of the assembly gain is often a private developer.

Why does condemnation law insist on undercompensating owners in these ways? The primary answer given by the Supreme Court is administrative costs.43 Measuring the owner’s subjective premium would be very difficult, might degenerate into a swearing contest, and would be prone to abuse. Measuring assembly gain would also be difficult, given the lack of a market for many assembled tracts (consider highway rights of way for example). And there is no obvious principle for how the gain should be divided between the condemnor and the condemnees.

Undercompensation may also be appropriate to discourage overreliance by owners. For example, we do not want to encourage owners to make elaborate improvements to their property when there is a high probability that it will soon be taken for some public project. Incomplete compensation for takings can be seen as a kind of co-payment requirement that creates an incentive for owners, as well as the government, to minimize the losses associated with takings. Too much government forbearance, as Chief Justice Taney recognized, can be a bad thing, not just too little forbearance.

Nevertheless, it is quite plausible that some reform of the fair- market-value formula in the direction of more complete compensation is warranted. The model here would be the federal Uniform Relocation Act, which mandates the payment of certain costs of takings that the fair-market-value formula ignores. The federal act, for example, pays moving costs, costs of temporary housing, and damage to personal property caused by a taking, subject to limits. Further modifications along these lines aimed at providing more

43. See, e.g., United States v. 564.54 Acres, 441 U.S. 506, 510–12 (1979).