Compensation for Compulsory Acquisition

Abstract

powers of the compulsory acquisition of property, apparently as a way of overcoming such supply problems as they relate to land and the capital fixtures thereon.' One of the main issues arising from the exercise of the power of compulsory acquisition is whether a means can be found to justly compensate the owners of the assets acquired by the state which does not harm, or which may even enhance, the social efficiency properties of the acquisition process. There is a considerable degree of confusion concerning the role of compensation, because legal experts typically assume that compensation must be paid, while economic analysts often argue that compensation is incompatible with efficiency.2 It will be suggested here that the role of compensation should be judged in relation to a set of interdependent public sector project and private sector investment decisions. The postulated public and private decision-taking processes will be symmetrical in the sense that both may be influenced by the compensation flow, by the obligation to pay or the expectation of receiving compensation. Given this symmetry, compensation can be seen as a means of regulating the involvement of the government in forced exchanges, as well as a way of protecting those who stand to lose their assets. Arguably, it has been the failure to emphasize both the interdependence between the two sectors and the regulatory role of compensation which has encouraged the skeptical view of the merits of compensation expressed in some of the previous studies. Moreover, the consequences of compulsion in the acquisition process have not been fully explored, and these may also color one's judgment of the impact of particular forms of compensation. The sequence of the analysis, and the

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