Property Rights Initiatives, Round II

One of the interesting aspects of blogging is that you can toss off a little ditty on half a cup of coffee, and before lunch, there will be a treatise posted on some blog somewhere dissecting your argument. My (how should I put this) less than fully developed case against Washington State’s property rights initiative came in for such treatment at the less than gentle hands of Geoffrey Manne at “Truth on the Market.” Because I continue to disagree with these sorts of laws, notwithstanding his post (and Prof. Bainbridge’s apparent verdict that I am soundly beaten), I thought I’d try to defend some of my initial points.

Before I begin, I want to note several distinctions that I think Manne (and other defenders of laws like Measure 37) ignore or blur. (This is not really a criticism, as my original post was hardly a model of theoretical clarity. But I do think distinguishing among these various strands of pro-Measure 37 sentiment is helpful.) Measure 37 and laws like it have been defended on libertarian, economic, and fairness grounds. The problem is that it doesn’t quite fit any of them, though it seems to fit the libertarian explanation most closely.

The libertarian case is based on the assumption that regulation intrudes on property rights and should be prevented or at least minimized. Manne, and others, sometimes suggest that Measure 37 is not anti-regulatory as a general matter, because it permits regulation as long as government pays for it. (I will address this point shortly.) Moreover, Measure 37 is selective in its defense of property rights, as I observed in my original post. Despite all of this, I think the libertarian explanation is really the best theoretical fit for laws like this. Their defenders, however, hate to admit this. (It’s tough to find someone in the legal academy who will call him or herself a “libertarian.” Even Richard Epstein prefers to be called a “classical liberal.”)

The economic case for these laws focuses on the desire to get government to take into account the economic costs of regulation. This is the so-called “fiscal illusion” argument for broad regulatory takings compensation. As several scholars have noted, the economic justifications for Measure 37 type laws assume that, if government could only be forced to pay the costs of its regulations, it would limit regulations to those that generate more net benefits than costs, an assumption that — in light of regulators’ diverse incentives — is questionable at best. Moreover, these arguments are subject to the myriad objections that have been raised against the usefulness of cost benefit analysis when dealing with the incommensurable values implicated by land use regulation. (I won’t get into or rely on those arguments in this post.) In any event, by ignoring transaction costs and by only creating a mechanism for internalizing the costs of regulation (and not its benefits), Measure 37 creates an unbalanced set of incentives, a (probably intentional) lack of balance that seems rooted in libertarian, anti-regulatory motives that have little to do with efficiency.

Finally, the fairness case focuses on regulation’s tendency to spread its costs unevenly. Measure 37, however, creates a remedy for any decline in property value due to regulation, no matter trivially small and no matter how widely (and fairly) distributed. For example, imagine a small town that imposed an across-the-board regulation that caused every property owner to suffer a uniform 1% decline in property values. Measure 37 would require the city to compensate every property owner. Of course, if the city chose to proceed with the regulation, it would have to compensate owners out of tax revenue that is (probably) collected from the same property owners. So Measure 37 simply requires the government to go through a few extra steps to accomplish the same regulatory goal, with roughly the same distributive consequences. The problem, as everyone knows, is that none of these steps is free, and not all of them are equally politically feasible. So forcing government down this path seems designed to rig the system against regulation, no matter how fairly it spreads its costs.

Throughout his response to my original post, Manne mixes and matches these defenses in a way that, while perhaps at times rhetorically compelling, makes it very hard to craft a clear response. Nevertheless, bloodied but unbowed, I’ll try to offer a rebuttal case.


First, Manne takes issue with my characterization of the law as a disaster for Oregon land use planning. He says:

True enough, if by “land use planning” you mean “that which the planners want to do without any regard for such trivialities as economic effect, distribution of costs or even social welfare.”

Actually, I think my point makes sense even if you consider “land use planning” to mean just the ability to implement a coherent regulatory scheme. Measure 37 could plausibly be described as a disaster for land use regulation as it has played out in practice because it pushes government to accomplish its regulatory goals through a tax-and-spend mechanism that makes it far more likely that government will simply throw in the towel and decline to enforce its regulations against Measure 37 claimants at all (resulting in a patchwork of regulatory enforcement), and that, going forward, makes government loath to enact new regulations, even when they might be socially beneficial.

Moreover, the fact that 100% of the successful claims resolved to date have resulted in waivers is a disaster in the sense that the waivers make the regulations less, not more, fair to those who remain subject to the regulation due to their inability to bring a Measure 37 claim. The Oregon law does not apply to property that changes hands after regulations go into effect. On one level, this makes sense, because the cost of regulation is likely to be factored into purchase price of the property. But the Oregon law measures damages at the time the claim is brought, not when the regulation is imposed. Because it applies retroactively to regulations imposed prior to its enactment, in many cases the loss placed on the property owner when the regulation was first imposed (and, therefore, the cost adjustment factored into the purchase price) will have been far lower than the cost to government, once the claim is brought, of continuing to enforce the regulation. (Consider two parcels of farm- land subjected to development restrictions pursuant to an urban growth boundary when the city’s edge is 15 miles away. One of the parcels then changes hands. Twenty years later, once the city’s edge has spread within striking distance of the parcels, Measure 37 is enacted, permitting the owner of the unsold parcel to bring a claim for substantially more money than he would have obtained 20 years earlier, when the development value of the land was far less certain.) This measure of damages seems to put a thumb on the scale in favor of waivers. Admittedly, this is a problem that will diminish with time, because of the two-year statute of limitations for the law. In the meantime, the waivers undermine political support for enforcing regulations even against those who do not have Measure 37 claims.

This takes me to Manne’s second point:

In what way does the fact that waivers were given instead of damages amount to disaster? I would think that any such claim would require some consideration of the costs of the regulations at issue, their benefits to society, and the appropriateness of waivers versus compensation in particular instances. In one important respect, the granting of waivers instead of compensation demonstrates the success of the law — success in highlighting that the social cost of land use planning regulations may exceed the benefit, a fact conveniently masked when only a tiny fraction of society actually pays the costs.

I do agree with Manne that the question cannot be definitively answered without exploring the details of the cases that have been brought to date. I suppose it is possible that the fact that 100% of the successful claims have led to waivers suggests that the regulations in question were all socially wasteful. But somehow I doubt it. My doubts stem from the poor fit between the goal of picking out socially wasteful regulation, and Measure 37’s actual design.

It seems more likely to me that the absence of any compensation payments is the result of governments taking the path of least (budgetary) resistance in a political climate where it is politically difficult to raise taxes. From a generalized anti-regulatory point of view, this is a desirable result. But if the goal is the more balanced one of picking out and deterring those land use regulations that are socially wasteful, it’s hard to defend.

Manne also takes issue with my claim that these laws are based on the premise that property owners should not be expected to bear any burden in their use and enjoyment of property, no matter how trivial. He says:

I guess this might be true if people didn’t pay taxes (including property taxes, which would tend to increase with any increases in property value attributable to the non-application of the land use planner’s Utopian vision). But they do, generally, pay taxes. Why bearing the burden of our use and enjoyment of property also should entail the application of disparate, politically-motivated and/or socially-costly use restrictions is not clear to me.

Setting aside the fact that property taxes will increase a fractional share the increase in property values resulting from the waiver (or from a socially beneficial regulation of someone else’s property, whether that person is compensated or not), I’m not sure I understand Manne’s point here. On the one hand, the distribution of property taxes is irrelevant because Measure 37 is not about differential costs. It says that costs imposed pursuant to regulation must be compensated, even when they are as widely and evenly shared as taxation. But even just focusing on differential costs, Manne seems to assume that any differential effect (in terms of property values) due to regulation, no matter how trivially small, ought to be spread to all property owners (or all tax-paying citizens). This a very questionable position, for any number of reasons. From a purely economic point of view, it would seem that some consideration of the transaction costs of spreading is appropriate. Once you consider the costs of accomplishing spreading, which Measure 37 ignores, the mandate to spread all costs can be as socially wasteful as any regulation. And, while I can certainly understand the fairness concerns raised by the imposition of dramatically unequal regulatory costs, costs that are just barely unequal (which Measure 37 would nonetheless require to be (re)spread through the tax system) seem far less troubling. Finally, how and when fairness requires us to spread even dramatically unequal costs of regulation is an incredibly complicated question that has confounded courts and scholars for decades. In at least some cases, it seems perfectly fair to impose unequal costs on landowners, such as when the regulated land use, though perhaps not strictly a nuisance, itself generates or exacerbates harms born by the rest of the community that the regulation is designed to forestall. Wetlands regulations might be an example of this. Measure 37 (and all such property rights compensation schemes) sweeps these (substantial) complications under the rug.

Next, Manne takes issue with my criticism of these laws as unbalanced:

I think it is a ridiculous fallacy to assert that land owners are net beneficiaries of government services, who benefit disproportionately from the state action they pay for via taxes.

This is just an attack on straw, conflating the fiscal illusion argument with the fairness argument. Just as some property owners get unfairly shafted by regulation, it seems to me to be beyond dispute that some property owners get unfair benefits. Note, I did not say that this is true of most property owners or property regulation considered as a whole. Does Manne really want to deny that, just as with the costs of regulation, the benefits of government action are not evenly spread? Some property owners do end up clear net beneficiaries of government action — my example of the owner of a commercial property next door to a newly opened freeway exit (or military base or transit stop or park). (UPDATE: or historic landmark, or protected wetland, or endangered species habitat…. it doesn’t stop with the beneficial effects of the government’s decisions with respect to its own property.)

“Two wrongs don’t make a right,” Manne responds. But fixing just one (fairness) wrong without fixing the other certainly rigs the system in one direction in a way that has very little to do with the efficiency considerations on which Manne (sometimes) focuses. Forcing government to pay for all of the effects of regulation on property values without simultaneously creating a (politically feasible) mechanism whereby government can recoup unevenly spread spillover benefits of its regulations appears to be a gambit designed to deter property regulation, plain and simple. Doubtless libertarians think this is a good thing, but then they should make plain their arguments against regulation as a whole, not just trot out the standard arguments against the unfairness of unevenly spread costs or social waste. But Manne never really attempts to defend this anti-regulatory libertarian position.

Finally, Manne takes me to task for criticizing these laws as being the result of interest group politics and for their apparent inconsistency in exempting certain politically unpopular land-uses from their ambit. To be clear, I have no problem with interest group politics. My point was simply to take a little steam out of the argument, frequently asserted by supporters of these laws, that they reflect widespread property-owner outrage against out-of-control land use regulation. As I explained in a previous post, I think that assertion is not merited by the evidence. In the case of the Washington initiative, the measure probably got on the ballot, not because the people as a whole are up in arms about the state’s land use laws, but because its supporters can afford to pay people to go collect signatures (thanks in part to a substantial donation from an out-of-state property rights group). I will be the first to admit that this is not a substantive argument against property rights laws, it’s just an argument against one of the justifications frequently raised by the supporters of these sorts of initiatives. If it’s fair for them to point to broad-based popular outrage as a justification for these laws, it’s fair for me to suggest reasons for doubting the factual accuracy of that justification.

As for the inconsistency of these laws, I’ll admit it was a cheap shot, but it was simply too good to pass up. If Manne thinks that pornographers should be compensated for the harm to their property inflicted by anti-porn regulation, I applaud him for his consistency. The inclusion of these exceptions within laws like this suggests that his erstwhile libertarian fellow travelers are not nearly as principled. They want to be free from the costs of regulation (or from the unevenly distributed costs of regulation) of their property but they feel perfectly fine imposing those costs on those whose land uses offend them. It’s clearly not a big point, but it’s at least a little one. And doesn’t it capture perfectly the contradictions of the modern Republican coalition? “No regulation! Yeah, and no porn either!”

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11 Responses

  1. Andrew Carlon says:

    Forcing government to pay for all of the effects of regulation on property values without simultaneously creating a (politically feasible) mechanism whereby government can recoup unevenly spread spillover benefits of its regulations appears to be a gambit designed to deter property regulation, plain and simple.

    It is telling that these laws create a downside to regulation without creating any sort of corresponding upside. One wonders how many I-933 supporters would agree to add a provision to raise the money required to compensate disadvantaged landowners through a tax imposed on benefited landowners, in proportion to the appreciation on their property due to the regulation. This would remedy both the fairness and the inefficiency/”fiscal illusion” concerns.

    Of course, the transaction costs for such a system would be huge. It would also cause a tremendous amount of disruption to the “advantaged” landowners, who would have to pay a current tax–in cash–on a benefit they have not yet realized. (Perhaps allow the deferral of the tax–and require deferral of the government compensation–until the property’s sale or disposition?)

    But such a dilemma provides no conflict whatsoever for the libertarian, for whom regulation a priori has no upside.

  2. Mark Seecof says:

    You say that compensation for regulatory takings is improper because it’s asymmetrical–landowners are not required to compensate the gov’t for the “benefits of government action.”

    You give the example of a nearby freeway offramp–built by the government, its presence may increase the value of adjacent property. However, you miss the key distinction between the type of cost addressed by Measure 37 and the type of benefit you wish to consider: your type of “benefit” to the landowner is entirely fortuitous. The landowner has not forced the government to bestow this benefit and has no way to prevent it. Indeed, this benefit is not really distinct from any other increase or decrease in property values due to external conditions (as opposed to improving the property itself)–for example, someone might build a factory nearby, attract workers to new jobs, and incidentally promote an increase in the value of some nearby property for housing, while causing a decrease in the value of other nearby property (say, by obscuring pretty views). Neither change would be compensable.

    On the other hand, government regulations diminish property values precisely by forcing the landowner to behave differently. For example, the government may forbid a landowner to improve his property (that’s the main complaint driving things like Measure 37–so-called growth controls which represent the worst kind of rent-seeking by existing homeowners–driving up housing prices for new market entrants, and destroying the value of yet-undeveloped property).

    Measure 37 doesn’t ask the government to pay for diminutions in property values which are mere externalities of the government’s use of land it owns (e.g., building freeway offramps which diminish nearby property values by being noisy and unsightly). There’s no reason it should ask a landowner to pay for positive externalities of gov’t use of gov’t land.

    As for Mr. Carlon’s view (for which I thank him), let’s note that regulations of the sort contemplated by Measure 37 basically cannot do better than zero-sum. That is, virtually any land-use regulation that increases the value of A’s property does so by diminishing the value of B’s. Once again the example of “growth controls” may properly stand for all such. Growth controls diminish the value of property outside the “urban growth boundary” in order to increase the value of property within it. When you add transaction costs to the changes in property value, you’re into negative-sum territory.

    Since regulations are nearly always negative-sum, it is quite proper to discourage them with something like Measure 37. (We don’t have to worry about encouraging regulations that offer any benefits (to some class of landowner)– rent-seeking takes care of that.)

    (You can make an argument that some regulations–like laws forbidding landowners to keep visible trashpiles on their properties–are positive sum, that they increase the value of everyone’s property. Even if you neglect the value a few landowners place on their convenient trash piles (even just the avoidance of hauling and tipping fees to get rid of them), this sort of argument is very tough to prove empirically (and only seems appealing for really benign regulations). By contrast, empirical demonstrations abound of the destructive impact of the kind of regulations Measure 37 seeks to mitigate.)

    Measure 37 quite properly addresses the cost (not an externality, but a direct cost) that a government regulation imposes on a landowner. It’s true that forcing governments to consider these costs may not really be enough to avert their imposition–after all, politicians are playing with “other people’s money.” But there’s no reason we have to forego a partial solution because we can’t figure out a complete one.

    (P.S. I don’t think you should accuse the “libertarian” supporters of laws like Measure 37 of unprincipled willingness to impose regulatory costs on other people because of the p()rn thing. Leaving some folk to suffer regulation without compensation reveals nothing more about Measure 37 supporters than their need to compromise politically with much-less-libertarian voters. Those who support Measure 37 would rather have half a loaf than one; is that so evil? Perhaps they can expand Measure 37 later to those who it leaves out now.)

  3. Mark Seecof says:

    Eek! That’s half a loaf or none!

  4. eduardo penalver says:

    Mark — That’s an interesting distinction, but I think it sounds completely in libertarian preoccupations with autonomy/rights and not at all in economic concerns about costs/benefits. Am I missing something?

  5. Chris says:

    You seem to dismiss, out of hand, that wanting to impose hurdles for regulation is without merit. I know of many people, from across the political spectrum (liberal to conservative), that feel that government regulates too much.

    Adding costs where there are currently none does not seem to be an absurd proposition.

  6. Mark Seecof says:

    eduardo penalver wrote:

    Mark — That’s an interesting distinction, but I think it sounds completely in libertarian preoccupations with autonomy/rights and not at all in economic concerns about costs/benefits. Am I missing something?

    Thank you kindly, but I think you are missing something. I take some interest in autonomy, but rather more in public policy that minimizes economic distortions from rent seeking. Or to put that another way, I think equality before the law is good economics.

    I’m quite in favor of cost-benefit analysis. That’s why I favor Measure 37. All it does is ask government to weigh regulatory costs (at least the portion to be borne by afflicted landowners) against benefits. If the benefits are great, government may easily use a portion of them (collected by taxation, if necessary) to defray any attendant costs. If the costs (including transaction costs) exceed the benefits, then how can the regulation be good public policy?

    (I don’t wish to neglect your observation that there are problems with the way Measure 37 allows government to simply exempt squeaky wheels from regulation. It would be better if government had always to pay for harm done, or to mitigate an offending regulation for everyone. To the extent that some people get exemptions and others get shafted, that aspect of Measure 37 will demand further reform. I would not sacrifice the whole thing to cure this partial fault, though.)

    To my observation, rent-seeking behaviour by citizens and politicians tends to tip government regulation increasingly toward one faction or another. For example, current homeowners will support politicians who restrict the supply of new housing–that drives up the value of existing houses. That’s bad for young people, and for folks who want to move into the jurisdiction from somewhere else. If these things just seesawed back and forth, they wouldn’t be any threat to our democracy. But they don’t, because of positive feedback–once preferential regulations enrich some group, its members spend some of their gains to purchase even more preferential regulation, and so-forth. Whoever loses in the first round has a much steeper hill to climb in the second, and third, and so-on.

    When regulations burden some to benefit others the question of fairness comes up. It should come up! Our society functions on the perception of relative fairness in public administration. Yet land-use regulations are often grossly unfair.

    One might compare, say, the tax-funded Medicaid system to, say, urban growth boundaries. Everyone who pays income taxes pays for Medicaid. Anyone whose income drops below the poverty level can get Medicaid benefits. While it is true that many people never leave one of those groups for the other, the possibility is always there (especially with age). By contrast, when an urban growth boundary is first laid down, everyone who had invested in land outside of the line loses most of the value of that investment. Everyone who had invested in land on the inside gets an huge windfall. The windfall to the second group comes at great expense to the first[1], and there is no practical possibility of ever changing places.

    As I mentioned before, in our society there’s no difficulty getting people to work for a regulation which produces benefits to them(!). And of course, anyone who expects a cost from a regulation will oppose it.

    But it is the rare regulation which benefits all alike. It is much more common for a regulation to benefit some and burden others. In our political system, in fact, the usual pattern is for a new regulation to benefit a fairly large group by a modest amount, and to burden a fairly small group by a large amount. Most land use regulations are like that. In order for many people in a built-up area to enjoy a boost in the value of their homes and the perpetual pleasure of driving occasionally along green-bordered lanes through empty lands just beyond the present city limits, the owners of those verdant acres–who had originally planned to subdivide them for housing when the time was ripe–must be dispossessed.

    Since the urban voters outnumber the suburban… well, we know what will happen.

    It is this hopefully-curable illness of democracy, the positive feedback of rent-seeking and regulation, which we must seek to minimize by laws such as Measure 37.

    Now, perhaps you are about to reiterate your question: what about cost-benefit analysis? After all, if a regulation produces some balance of benefits and costs, what’s the problem? I don’t want you to think I’m just blowing smoke to cover some “libertarian” concern you despise! Honestly, I don’t see any conflict between fairness analysis and cost-benefit analysis, because costs and benefits tend to become unbalanced when some people can obtain benefits by inflicting costs on others. History shows that people will cheerfully impose even large costs on others to obtain just a small benefit for themselves! If you would prefer that social benefits balance or exceed costs, you must keep a close eye on fairness.

    If you won’t take my word for it, go to the economics textbooks. Virtually always, successful rent-seeking destroys more value than it creates.[2]

    Look, the right measure of a regulation isn’t whether the benefits to the immediate winners exceed the costs borne by the immediate losers (although by that yardstick alone, many land-use regulations would come up short). The right measure is whether the benefits to society exceed the costs. On the cost side, we need to count the cost of destroying our social compact along with the instantaneous costs of a particular regulation. Once we countenance regulations, driven by rent-seeking, that dispossess some for the benefit of others, we can confidently expect more and more of the same, summoned and paid-for by the Devil’s positive-feedback loop, until a modest group of cronies around a small group of crooked politicians keeps the whole country in peonage. We’ve seen it elsewhere–Indonesia, Mexico, Khazakstan–we don’t need to try that here.

    (Actually, I think Measure 37 is best seen as a flowering of democracy–and the last stand of the civic-minded people of Oregon. It may be hard for people on on the Eastern seaboard to comprehend, but Measure 37 was really a referendum on Oregon’s experiment– largely driven by its one big metropolis of Portland– with land-use regulation strict enough to be called confiscatory, which has had the side effect of greatly enriching homeowners in Portland at the expense of everyone else in the State.

    (Since the regulations in question have always been touted as “protecting the environment,” the rearguard of honest citizens in Oregon has demanded that their government put some money where its mouth is… to pay for truly necessary regulations, and, hopefully, to forego those which are merely corrupt.)

    [1] Of course, gains to landowners inside a new urban-growth-boundary come out of many wallets. The value of land outside the boundary is transferred to land inside it. Then more comes from people who don’t own any land–but who must pay higher rents to live in the area, or who pay more to relocate into the area from far away.

    [2] Look, one objection often heard to proposals like Measure 37 is that they would “make desirable regulation too costly.” How could it be “too costly” to pay for a regulation, unless it would cost more than it is worth? If the cost does exceed the expected benefit, how can the regulation be good public policy? When politicians may neglect costs (by foisting them off uncompensated on minorities of voters), then they can reward rent-seeking supporters with narrow benefits from regulations which lack real public policy justification.

  7. I posted a similar point in the comment thread to your earlier post on this subject, but I wanted to reiterate it here: you keep trying to point out the problems with the Measure 37 type laws by focusing on situations where the costs are “trivial.” But if the costs are trivial, why isn’t the issue trivial? Compensate landowners for the “trivial” damages they’ve suffered, and move on.

    You further argue that because Measure 37 would require raising taxes, governments are more likely to “throw in the towel” and decline to regulate, which would prevent even regulations which are “socially beneficial.” Now, leaving aside the issue I raise above about the “trivial” costs, your point seems to me to be not only illibertarian but also fundamentally anti-democratic. If government can’t convince the public that the regulations are “socially beneficial” enough to justify the increased taxes, then why should government be enacting/enforcing these regulations? If the taxes are more unpopular than the socially benefits of the regulations are popular, isn’t that an argument against the regulations, not against the compensation provisions?

    Incidentally, in your discussion about transaction costs, you say “For example, imagine a small town that imposed an across-the-board regulation that caused every property owner to suffer a uniform 1% decline in property values. ” In response, I say “Imagine a small town whose government is immediately voted out of office.” Governments do not ordinarily impose regulations that cause across the board declines in property values; that would be irrational, economically and politically. (Who’s the constituency in favor of that? Masochists?) They impose regulations that benefit some at the expense of others.

    Finally, you talk about interest groups (paying to) put the laws on the ballot as evidence that the outrage isn’t widespread. But (to state the obvious) interest groups only pay to collect signatures; the general public still has to vote. The fact that the public approves the measure is stronger evidence in favor of public outrage than the fact that someone paid to put the measure on the ballot is evidence against public outrage.

  8. PK says:

    Prof. Penalver,

    Part of your argument relies in a misreading of I-933. You claim that a local government must compensate for a generally applicable regulation that reduces property values, but Sec. 2(c) of the intiative specifically exempts such regulations. That section states “‘damaging the use or value’ does not include restrictions that apply equally to all property subject to the agency’s jurisdiction.” Therefore, the generally wasteful (because of transaction costs) recycling of government funds you describe will not occur.

    Also, you seem to have changed the general thrust of your argument from the anti-social cast of I-933 (the gist of your first post) to economic arguments against it (your second). Why? Your first post implicated an important question about government: should it be involved in the business of wealth redistribution? You would obviously say yes, and I-933 is just that, a transfer of wealth from landowners to non-landowners via an inefficient form of taxation, namely land-use regulation.

    For those who do not like government wealth redistribution, you’ve got an intractable disagreement. For those who do, you can then have solely an economic argument about the most efficient way to do it or point out reasons why why we should tolerate some “inefficiency” here, e.g., incommensurable values.

    By ignoring the deeper question of whether government should be in the business of wealth distribution that lies at the heart of this debate, you and your critics seem to be talking past each other.

  9. PK says:

    Mark,

    You state “Look, one objection often heard to proposals like Measure 37 is that they would ‘make desirable regulation too costly.’ How could it be “too costly” to pay for a regulation, unless it would cost more than it is worth?” While this seems entirely sensible, consider the following problem:

    In a town of 100,000, 1 landowner is engaged in a use that negatively impacts 5000 other landowners, but does not rise to the level of a nuisance. Assume that the net benefit to the landowner of the use is $250,000, but the cost to those injured is $500,000. Since the costs outweigh the benefits, regulating the land use is justified. But, if compensation must be paid, will the land use actually be regulated?

  10. Mark Seecof says:

    PK, nice problem. In your example, at first glance, the positive value of regulation would be $250,000–so I presume you’re suggesting that the transaction costs of paying compensation might exceed that amount, making the regulation unattractive after all.

    That seems quite possible to me. To extend your example, it might take a local special election to approve a tax to pay the compensation–and such an election might cost, say, $300,000.

    Since transaction costs are as real as any others, if we would have to spend $550,000 to get benefits worth $500,000, we need a different plan.

    I think your example is one of a collective- action problem. Such problems abound, and I would say often they have no easy solutions(!). In your example, the city government could spend general funds to buy out the 1 landowner in the interests of the 5000, but the other 94,999 people in the city might get upset. (They would have good reason.)

    Perhaps the 5000 landowners should promote a city program to retire a whole list of undesirable land uses. The city could hold a $300,000 special election to raise $5,000,000 in taxes to buy out 20 near-nuisances, producing a net gain of $4,700,000, which would be spread over nearly everyone in the city.

    But wait! That’s what Measure 37 prompts local governments to do!

    I don’t think we should ask government to fix everything, nor burden all citizens with transaction costs to address the problems of a few. If the costs–all the costs, including transaction costs–of some regulation exceed the benefits; okay–let’s drop it. Perhaps things will look different in a few years.

    If some matters seem more urgent, then let those affected work together to set up a solution that doesn’t involve dumping the costs on some impotent minority.

  11. PK says:

    Mark,

    You’re point is well taken. The solution to the problem I posed seems to be comprehensive land use planning by the government that can act as a form of logrolling. But, as to Measure 37 specifically, how does the ability to grant a waiver disrupt these plans? In a logrolling situation, you need to be guaranteed that you’ll get what you bargained for. But Measure 37 allows waivers and, unsurprisingly since it’s the path of least resistance, waivers have been the overwhelmingly (unanimously?) chosen remedy of the Oregon government. Once the possibility the waivers enters the picture, the efficacy of the comprehensive plans you discuss seems to fall apart, since I might be paying to have the near-nuisance across town eliminated by the near-nuisance next to me is given a waiver.