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Proceedings of the 2008 Land Policy Conference

Eie by Gegy K. Ig Yu-Hug Hg

PROPERTY RIGHTS

and Land PoLIcIEs

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Property RightsandLand Policies

Edited by

Gregory K. Ingram and Yu-Hung Hong

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2009 by the Lincoln Institute o Land Policy

All rights reserved.

Library of Congress Cataloging-in-Publication Data

Property rights and land policies /edited by Gregory K. Ingram and Yu-Hung Hong.

p. cm.Includes index.

ISBN 978-1-55844-188-01. Land tenure. 2. Land use. 3. Real property. 4. Eminent domain.

I. Ingram, Gregory K. II. Hong, Yu-Hung. III. Lincoln Institute o Land Policy.HD1251.P77 2008

333.3dc22 2009002563

Designed by Vern Associates

Composed in Sabon by Achorn International in Bolton, Massachusetts.Printed and bound by Puritan Press Inc., in Hollis, New Hampshire.

The paper is Rolland Enviro100, an acid-ree, 100 percent PCW recycled sheet.

m a n u f a c t u r e d i n t h e u n i t e d s t a t e s o f a m e r i c a

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CONTENTS

List of Illustrations ixPreface xi

Introduction 1

1. Examining Land Policies from a Property Rights Perspective 3


The Design and Evolution of Property Rights Institutions 23

2. Design Principles of Robust Property Rights Institutions:

What Have We Learned? 25

Elinor Ostrom

3. U.S. Private Property Rights in International Perspective 52

Harvey M. Jacobs

4. Chinas Land System: Past, Present, and Future 70

Dwight H. Perkins

commentary 93

Scott Rozelle

5. Property Rights and Real Estate Privatization in Russia:

A Work in Progress 96

Bertrand Renaud, Joseph K. Eckert, and R. Jerome Anderson

commentary 134

Robert M. Buckley

6. Developing Land Markets Within the Constraint of

State Ownership in Vietnam 137

Stephen B. Butler

commentary 175

Annette M. Kim

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Public Compensations for Takings 179

7. The Use of Eminent Domain in So Paulo, Bogot,

and Mexico City 181Antonio Azuela

commentary 200

Vicki Been

8. The Myth and Reality of Eminent Domain for Economic

Development 206

Jerold S. Kaydencommentary 214

John D. Echeverria

9. Property Rights Protection and Spatial Planning in

European Countries 216

Vincent Renard

commentary

230Barrie Needham

10. Should Decreases in Property Value Caused by Regulations

Be Compensated? 232

Abraham Bell

commentary 251

Perry Shapiro

Property Rights Approaches to Achieving Land

Policy Goals 255

11. Land Registration, Economic Development, and

Poverty Reduction 257

Klaus Deininger and Gershon Feder

commentary 292

Alain Durand-Lasserve

vi Contents

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12. Looking Beyond Land Titling and Credit Accessibility for

the Urban Poor 296

Edsio Fernandescommentary 314

Ernesto Schargrodsky

13. Property Rights Created Under a Federalist Approach

to Tradable Emissions Policy 317

Dallas Burtraw and Richard Sweeney

commentary

355Wallace E. Oates

14. Private Conservation Easements: Balancing Private

Initiative and the Public Interest 358

Gerald Korngold

commentary 378Nancy A. McLaughlin

15. The Role of Private-Sector Developers in Challenges to

Local Land Use Regulations 384

Keri-Nicole Dillman and Lynn M. Fisher

commentary 413Alexander von Homan

16. The Mediocrity of Government Subsidies to Mixed-IncomeHousing Projects 418

Robert C. Ellickson

commentary 449Ingrid Gould Ellen

Contributors 453

Index 457

About the Lincoln Institute of Land Policy 485

Contents vii

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xi

PREFACE

Property rights are undamental to the conceptualization and implementation oland policies. In the United States, the debate over public rights in private landwas heightened by the Supreme Courts 2005 decision on the case oKelo v. Cityof New London, 545 U.S. 469, arming the legitimacy o government takingo private property or economic development. Not only did the ruling put thedispute on the ront page o the newspapers, but it also motivated 39 states topass laws restricting government exercise o eminent domain.1 In developingcountries, land titling has been viewed by some policy makers as a means toalleviate poverty. The idea, recently popularized by de Soto (2000), is that land

tenure could unlock the entrepreneurship o poor people by allowing them touse their real estate assets as collateral to borrow investment capital.To assess the impacts o these changing perceptions o private property on

land use planning, property taxation, and urban development, the Lincoln In-stitute held a property rights workshop in February 2007 and a journalist con-erence in April to discuss the outlook o eminent domain in the United States.Building on these two events, the Institutes 2008 land policy conerence broughttogether international scholars rom dierent disciplines including economics,law, political science, and planning to exchange views and present papers onthe relationships between property rights and land policies. The chapters andcommentaries in this book summarize the conerence participants perspectiveson the subject.

The essays discuss three issues. First, they explore the evolution o prop-erty rights institutions. A long-standing design principle or property rights in-stitutions holds that unbundling the dierent elements o property rights andrepackaging them according to varied circumstances allows property relationsto be structured in many ways. In the implementation and enorcement o adesign, rules are constantly challenged and revised by interested parties as neweconomic, political, and social situations unold.

Second, several essays examine the delicate balance between public and pri-vate rights in land. In addition to analyzing eminent domain in Brazil, Colombia,Mexico, and the United States, the essays investigate issues related to regulatorytakings in selected Western countries. The discussion reveals the importance oempirical research on the actual use o eminent domain and the infuence thatdierent judicial systems have on the eectiveness o this government power.Transerable development rights and the symmetry between public takings andgivings are also introduced as potential means to mediate controversies involvedin takings compensation.

1. See the Web site o National Conerence o State Legislatures at www.ncsl.org/programs/natres/EMINDOMAIN.htm.

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Third, applications o the property rights approaches to poverty alleviation,land conservation, and provision o aordable housing are reviewed. Currentexperiences o land titling in developing countries seem to have positive impacts

on property investments, but inconclusive eects on credit access by the poor.The pros and cons o using conservation easements to conserve natural resourcesand a comparison o inclusionary housing policy and the voucher program arepresented in detail.

The volume contains a wealth o innovative ideas and cross-border studies.The contributors willingness to share their research and comments and theireorts in revising their papers have made the publication o the book possible.The planning and production o the land policy conerence and this publica-tion have been acilitated by many people. We thank Diana Brubaker or her

assistance in identiying the speakers and discussants or the conerence andBrooke Digges, Mary Hanley, and Rie Sugihara or their careul attention tothe logistical details o the meeting. Finally, we are indebted to our editorial anddesign team, including Nancy Benjamin, Sybil Sosin, Emily McKeigue, and VernAssociates or their expertise and proessional help.

Gregory K. IngramYu-Hung Hong

reference

de Soto, Hernando. 2000. The mystery of capital: Why capitalism triumphs in the Westand fails everywhere else. New York: Basic Books.

xii Preface

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Introduction

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1Examining Land Policies from a

Property Rights Perspective


A

good understanding o how public and private property rights are con-ceptualized, applied, and balanced in dierent institutional environmentsis essential or making and analyzing sound land policy. To take stock o

current research on this subject, the Lincoln Institute o Land Policy convened agroup o international scholars in June to present and discuss their research onthe nexus between property rights and land policies. Three themes emerged romthe meeting. First, the linkages between the design principles or property rightsinstitutions and the political and cultural history o a country were examined inChina, Estonia, Russia, the United States, and Vietnam. Second, participantsdiscussed private property rights, the public interest, and compensation or emi-nent domain and regulatory takings in Brazil, Colombia, Mexico, the UnitedStates, and selected Western European countries. Third, participants debated the

eectiveness and airness o using varied property rights approaches to povertyreduction, environmental conservation, and the provision o aordable housing.Ideas exchanged at the conerence are grouped within the three topics and pre-sented in the chapters and commentaries in this book. This introductory chapterdiscusses the three themes. The next section highlights the connections betweenprivate property and institutions, which is the primary perspective o the book.

. Institution is dened as a set o rules that guides members o a society to select actions thatare socially acceptable and that prohibits them rom making undesirable decisions (North990).

. See Eggertsson (990) and Furubotn and Richter (005) or detailed discussions o theliterature on property rights institutions.

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Each o the ollowing three sections summarizes key messages o the chapters andcommentaries related to each theme. The conclusion discusses ideas and ndingsdrawn rom these contributions.

Private Property Rights and Institutions

Private property is perceived as an essential institution or economic developmentand wealth generation in developed and developing economies. Private prop-erty rights guarantee an owner the exclusive right to use, develop, consume, sell,mortgage, transer, and exchange possessions with other entities (Bentham 978).This bundle o rights serves three key social and economic unctions. First, pri-vate property prevents aggression. Clearly delineated and rigorously enorced

private property rights protect owners rom orced dispossession by the state orother parties (Blackstone 979). Hence, they assure the individual liberty and se-curity necessary to maintain peace within a community. Second, private propertymediates the problem o intertemporal investment. It assures an investor thatreturns on todays investment in land or production can be retained in the uture.Without the right to exclude others rom reaping the potential rewards, there willbe no incentive or a holder o resources to invest in long-term improvements.Third, private property acilitates division o labor. In a complex society whereeconomic activities require coordination and cooperation among individualswith dierent talents and skills, private property allows wealth created by a per-son to be an exchangeable asset. Individuals can pool their assets and labor totake advantage o the eciency gained rom specialization, thereby generatinggreater riches than a single person could achieve alone (Smith 776). With theassurance o peace on one hand and the promotion o mutual gains through vol-untary exchanges on the other hand, private property has transormed primitivesocieties into highly sophisticated agricultural and industrial economies (North98, 990; North and Thomas 973).

These benets o private property notwithstanding, the maintenance o thisownership system can be confict-ridden. The key assumption o the above argu-ments or private ownership is that externalities generated rom the individualownership o property can be internalized at no cost. This assumption is otenchallenged in the case o land. Take a typical example o confict associated withreal property ownership. A actory owner wants to maximize prot by operatingthe acility at its ull capacity. The increase in production will raise noise, conges-tion, and pollution levels, aecting neighboring property owners. I the actoryowner can identiy all appropriate negotiating parties, determine the amount ocompensation, negotiate an agreement, and enorce the settlement at minimumtransaction costs, the assignment o the responsibility to internalize the externality

will have no welare eect on the community (Coase 960, 988). For example, sup-pose the actory owner is liable or the damages and needs to compensate the resi-dents or the harm that by-products o the manuacturing activity infict on them.I negotiation costs are negligible, the parties will haggle until the total amount o

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examining land policies from a property rights perspective

compensation equals the welare loss o the residents. Alternatively, the propertyowners can pay the actory owner to curtail production to the level at which themarginal revenue orgone is equal to the marginal benet o having less pollu-

tion in the neighborhood. However, where the transaction costs o bargainingare high, both scenarios seldom actualize (Coase 960; Wallis and North 986).

When negotiation in property rights disputes is costly, the scope o the bundleo rights and duties o private ownership matter. The control over the varied rightsby dierent entities will shape the bargaining outcomes, thereby creating distri-butional and eciency eects on the economy that are likely to be suboptimal(Samuelson 966). In the design o property rights allocation, there are some keyquestions:

Which o the ull bundle o rights does an owner need in order to secureprivate property rights?How does the assignment o property rights dier in varied institutionalsettings? Are there any design principles?What are the wealth eects o dierent allocations o property rights?Ater rights are assigned, how do the conceptualization and enorcemento the assigned rights evolve in varying circumstances?How can the allocation o property rights help government achieve eco-nomic and land policy goals?

Although theoretical and empirical contributions to these subjects are accumulat-ing, they remain open questions.

The Design and Evolution of Property Rights Institutions

Initial theories o private property development suggested by economists aremainly based on cost-benet analysis (Anderson and Hill 975; Barzel 989;Eggertsson 990). In his classic explanation o the establishment o private landownership in eastern Canada, Demsetz (967) argues that increases in the valueo beaver urs due to the opening o trade created the incentive or the Indiansto establish exclusive rights to their territories. These private property rights pre-vented the overharvesting o beavers in an individual (or communal) territoryand thus ensured the owners exclusive access to a continuous supply o urs.North and Thomas (973) also apply a similar rationale to explain the changesin property rights institutions that led to the prehistoric shit rom nomadic hunt-ing to settled agriculture. As the size o the population increased, open access tonatural resources led to diminishing returns rom hunting. To alleviate problemsassociated with the tragedy o the commons (Hardin 968), the benets o settled

agriculture with the exclusive right to cultivate land outweighed the enorcementcosts o private or communal property.

This approach is adequate in explaining the evolution o private propertyrights and the emergence o rudimentary legal and political institutions. In todays

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economies, however, the infuences o legal, social, and political institutions areparamount. In the United States, or example, when disagreements over pub-lic inringement on private property arise, courts play a critical role in deciding

whether compensation should be paid. Because juridical decisions must be en-orced to be eective, governance structure and bureaucratic capacity or up-holding laws and orders are important. In other countries where the legal systemplays a less prominent role in confict resolution, social norms or reciprocity canbe the key mechanisms or resolving property rights disputes. Hence many re-searchers have examined the roles o law, politics, and cooperation in designinginstitutions that support the unctioning o varied property rights regimes (seeAlston, Eggertsson, and North 996; Buchanan 984, 99; Coase 960; Com-mons 934; Ellickson 989, 99; Libecap 989; North 990; Ostrom 990,

005, 007; Williamson 985).Elinor Ostrom, one o the pioneers in developing the theory o property rights,challenged the then-conventional wisdom that common-pool resources will beoverharvested i clearly delineated private property rights or state interventionsdo not exist. In her research Ostrom (990) ound that parties jointly using acommon-pool resource oten create workable ormal and inormal rules or re-source allocation. A governance structure that is based on private property rightsenorced by external authorities is not always necessary or optimal. Users areoten capable o nurturing trust and reciprocity to solve their collective actionproblems.

How do involved parties design and implement robust sel-organizingcommon-property institutions? In her 990 study Ostrom proposed eight designprinciples (see chapter , table ., or a list o these principles). In chapter othis book, she examines the validity o the principles by reviewing their applica-tion to 33 empirical cases published in research papers written by other scholars.Three-quarters o these cases show strong or moderate support or the useul-ness o Ostroms design principles. Scholars who reviewed the applications o thedesign principles suggest more precise specications or some principles. Someargue that the principle o delineating boundaries or commons should be dividedinto two parts, one or dening the boundaries o the resource, and the other orstipulating who should be included as authorized users. Also, the principle obalancing rights and responsibilities o appropriating a common-pool resourceshould be separated into three types: () harmony with the local ecology; () con-gruence with the local culture; and (3) equitable distribution o rewards to par-ticipants according to their contributions. Ostrom also translates all eight designprinciples into questions to assist in the diagnosis o institutional deciencies. Thisapproach, she argues, would enhance their application.

Ostroms research highlights the importance o high transaction costs o de-

ning resource boundaries and determining who is authorized to use the resource.Determining the size o uture expenditures or sustaining the resource and as-signing them to users in proportion to the benets received is also costly. Mini-mizing these costs requires a set o careully crated institutions, including () a

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participatory decision-making process; () an eective monitoring system thatprovides inspectors with proper incentives; (3) gradual and adjustable sanctionsaccording to the seriousness and circumstances o the oenses; (4) low-cost con-

fict resolution mechanisms at both regional and local levels; (5) recognition othe importance o sel-governance by users and outsiders; and (6) a multiple-layer,polycentric governance structure to connect smaller subgroups nested in a largercommons. Ostroms approach illustrates that the establishment and modicationo property rights systems necessitate heavy and prudent long-term investment ininstitutional building.

In chapter 3 Harvey M. Jacobs examines the conceptualization o privateproperty rights in U.S. history and argues that the current private property rightssystem is unique and is constantly evolving. Current legal and political interpre-

tations o individual property rights vis--vis the governments ability to controlthese rights or the public good are shaped by specic historical and culturalexperiences.

Starting in the colonial era, private land ownership was a major attraction toEuropean migrants who tried to escape eudalism in Europe and sought reeholdownership in North America. Private property was viewed as a means to securepolitical and economic reedom. Thereore, private property symbolizes the po-litical and ideological belies upon which the United States is ounded, and strongconstitutional protection o private property was deemed necessary.

When population, urbanization, and industrialization expanded in the twen-tieth century, the government began to limit individuals right to use and developtheir lands. Conficts over public rights in private land emerged. The courts werecalled upon to dene and reinterpret the takings clause o the Fith Amendmentto the Constitution. Several Supreme Court cases ound that the government hasthe legal right to expropriate private property or public purposes with justcompensation. The courts also ound that the government could constrain theuse o private property without compensating the aected owners so long as itsregulations did not amount to a taking. These legal decisions have been continu-ously challenged through political and social channels by private property rightsadvocates. As Jacobs asserts, disagreements over the meaning o private propertyrights allow the system to evolve and adapt to changing social, economic, andtechnological environments.

Given the unique process o private property evolution in the United States,to what extent is its experience transerable to other countries? Jacobs argues thatthe legal and social status o private property in the United States is convergingwith that in some Western European countries. Although the Western Europeancountries started with a greater allocation o property rights to governments,recent changes in planning laws to accommodate a more market-oriented land

management system and to uphold individual property rights have brought themcloser to the U.S. system. As to the lessons or developing nations, Jacobs specu-lates that, like the United States, many countries may also experience ongoingchallenges to and renegotiation o private property rights. The tension between

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the public right to manage scarce urban resources and individual entitlement tonewly created wealth intensies when the pace o urbanization and economic de-velopment accelerates.

Jacobss suggestion provides good insight into the development o privateproperty in China. As discussed by Dwight H. Perkins in chapter 4, the develop-ment o Chinese real estate markets has generated tensions between dierentsegments o the population and between the government and private propertyowners. In some coastal cities where residential housing markets are well de-veloped, afuent residents can purchase their homes in the private market. Citydwellers whose incomes are low typically purchase apartments rom their workunits and receive large subsidies. According to Perkins, both groups have expe-rienced signicant improvements in living space rom the recent housing reorm.

However, private property ownership is not available to rural-to-urban migrantswho cannot register as city residents under the current household registration (orhukou) system and are not entitled to government services and subsidies. Perkinsestimates that about 400 million people will migrate to cities over the next twodecades, and their exclusion rom home ownership needs to be addressed.

In addition, Perkins is concerned about the lack o legal and political supportor enorcing private property rights in China. Although the Chinese legal systemhas been gradually proessionalized, court decisions are still infuenced by theCommunist Party and the government. More importantly, court rulings must beenorced by the central and local governments. Given the heavy reliance o localpublic nance on land revenues, enorcement o private leasehold rights, such aspaying adequate compensation to leaseholders when their land is taken or publicuse, might ace strong bureaucratic resistance.

Echoing Perkinss concern, Scott Rozelle believes that weak enorcement othe Rural Land Contracting Law by local governments could be the main reasonor insecure land tenure in rural China. Eorts to encourage armers to registertheir leasehold rights are absent. This leads to reliance on inormal arrangementsor subleasing land when armers leave their villages or urban employment.Rozelle argues that inormal rental agreements are o short duration (one year)and are subject to considerable ambiguity. These institutional deciencies hinderthe pooling o smaller plots into a sizable arm or long-term investment, therebycreating ineciency and slowing income growth in rural China.

Like China, Russia has attempted to develop property rights institutions toacilitate the development o private real estate markets since 99. As o 008only one city (Veliky Novgorod) o 7 medium and large municipalities hasadopted a ully integrated real estate registration system. Legal rules establishedor land reorms are unclear and incoherent. What explains Russias ailure to es-tablish private land ownership? In chapter 5 Bertrand Renaud, Joseph K. Eckert,

and R. Jerome Anderson argue that the absence o a tradition o secure privateproperty in Russian history is paramount. The government has never been per-ceived as an impartial guarantor or protector o private property, and the concepto reciprocal obligation between ruler and citizens also did not exist. This legacy

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creates mistrust o the polity as an eective institution to enorce private prop-erty rights. Other, nonhistorical disabling actors include the lack o incentive orproperty owners to register their land, local scal dependency on land rents, an

underdeveloped real estate nancing system, and high property taxes.Renaud, Eckert, and Anderson also compare the Russian experience with

the process o private property reorms in Estonia. Unlike Russians, Estoniansexperienced a short period o private land ownership between the two worldwars. The authors argue that this history, albeit brie, allowed Estonia to developa coherent legal system or land privatization immediately ater independence.Real estate market development was also careully organized to support the largerstrategy o enabling Estonia to achieve ull independence rom Russia, reenact amodern Estonian constitution, develop an open market economy, and become a

member o the European Union. These linked objectives motivated the govern-ment to ensure the success o land privatization. The comparison o Russia andEstonia illustrates the importance o past institutions in shaping the developmento new property rights regimes in transitional economies. This nding accordswith the experiences o the United States and China. History matters in contriv-ing property rights institutions.

In his commentary Robert M. Buckley proposes an additional explanationor Russias slow land market reorm: heavily subsidized utility prices. He arguesthat Russian housing stock is mostly energy inecient. I utility costs were notset below market prices, there would have been strong incentive or owners toretrot their houses or to shit to more energy-ecient homes. Both investmentscan, ceteris paribus, increase housing value and thereore raise the benet o es-tablishing private property rights. Thus, the lack o price reorm in the energysector might have thwarted land market development.

Vietnam is another case that has attracted much attention. In chapter 6Stephen B. Butler discusses some institutional deciencies o land market reormin Vietnam based on a survey conducted in provinces. Six hundred sixty-vesmall and medium enterprises, 65 land market intermediaries, and state landocials were interviewed or their opinions on land tenure security, land useplanning eectiveness, ease o market transactions, and public administrationcapacity. Public ocials and land market intermediaries believe the current landallocation method in Vietnam to be inecient. To obtain land use rights or adevelopment project, an investor must apply to local ocials detailing the pro-posed land investment and technical plan or construction and provide evidenceo sucient capital to undertake the project. Upon the receipt o a license romthe government, the developer can select a land site and sign a land contract withthe government.

Butler asserts that this system has three problems. First, the procedure im-

poses tremendous burdens on local government capacity. In places where thereis not enough sta or trained personnel to handle the applications, review stand-ards become arbitrary. Second, the approval procedure distorts land prices andthus the supply o land. The survey reveals that inadequate land availability is the

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10 Gregory K. Ingram and Yu-Hung Hong

major complaint rom business land users. Third, involving local governmentsin land rights allocation encourages rent-seeking behavior. The state conscatesland rom holders with little compensation and leases the site to developers or

high leasehold charges. This practice can lead to social confict and jeopardizepublic condence in the state as the protector o private property.

In her commentary Annette M. Kim agrees with Butler that the Vietnamesegovernment ought to pay more attention to its method o assembling land, espe-cially to issues related to compensation, but she disagrees about the role o thestate in the assignment o land rights. While Butler sees government interventionin the land market as an impediment to its development, Kim thinks that thebureaucracy has been instrumental in mediating property rights disputes andadministering land transactions during the transitional period. She suggests that

since 77 percent o interviewed rms in Butlers survey have invested in landimprovements, the government has given many landholders a sense o tenuresecurity.

Public Compensations for Takings

The debate over government unctions during the evolution o private propertyrights provides a nice transition to the second theme o this book: public com-pensations or takings. The right to use land is seldom absolute under any privateproperty rights regime. Government, as a representative o the public, can con-trol the type and intensity o land development through regulation. It can evenconscate private property with compensation to advance public purposes. Thecritical matter is to balance public and private rights in land. The determinationo when public acts diminish private property rights to the extent that compen-sation should be paid to owners has generated contentious legal and politicaldebates in many countries.

In chapter 7 Antonio Azuela examines the conditions under which eminentdomain is used in So Paulo, Bogot, and Mexico City. Brazil, Colombia, andMexico all went through democratic transitions that changed the legal and politi-cal treatment o private property, and all three countries are experiencing increas-ing judicial activism. Despite these similarities, outcomes o the use o eminentdomain dier. Azuela suggests our reasons or the diverse outcomes that shedimportant light on the design o eminent domain institutions.

First, the placement o eminent domain power at dierent levels o govern-ment matters. When local ocials have the power o eminent domain, they areprone to utilize the legal authority to acquire private property or inrastructuredevelopment to satisy the demands o the constituents who elect them. The ex-perience o Bogot seems to support this argument.

Second, the role o the judiciary in determining the validity o the use oeminent domain and the amount o compensation is important. In Brazil andColombia, local governments must seek court approval beore they can expro-priate private property. Although judges in these two countries have typically

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examining land policies from a property rights perspective 11

set compensation at high levels, they normally deer to the expertise and mo-tives o local governments in exercising their eminent domain power. In Mexico,although the constitution gives eminent domain power to the president and the

state governors, judges oten grant aected owners injunctions to stop the pro-cess. They also modiy the amount o compensation and scrutinize the motiveo an expropriation, which seems constitutionally dubious in Mexico. Whilejudges in Brazil and Colombia play enabling roles in the use o eminent domain,the judiciary in Mexico complicates land expropriation.

Third, the scal implications o compensation also aect the use o eminentdomain in these countries. In all three cities examined by Azuela, exorbitantcompensations granted by the courts either have put local governments undernancial stress or have led to the abandonment o public projects. The deter-

mination o just compensation is the thorniest issue. Azuela suggests that bet-ter approaches to selecting and educating judges and to constraining them romoverstepping their constitutional duties are needed.

Stimulated by Azuelas study, Vicki Been proposes a research agenda thatocuses on identiying the actual users o eminent domain, the dierence betweenthe total amount o compensation paid or expropriation and the total marketvalue o involved assets, the requency o the actual use o eminent domain, andthe number o successul transers o property under the threat o eminent do-main. Been also emphasizes that knowing the distributional consequences o theuse o eminent domain under varying legal regimes is important.

In chapter 8 Jerold S. Kayden examines one o Beens questions: how otendo local governments in the United States exercise their eminent domain powerto condemn private property or economic development purposes? In view othe controversy generated by the U.S. Supreme Courts decision on Kelo v. Cityo New London,545 U.S. 469 (005), Kayden asked whether the public outcryrefected a legitimate concern over government abuse o eminent domain poweror was simply a strategy used by private property rights advocates to challengeplanning. A survey o ocials in 53 municipalities with population o greaterthan 00,000 residents sought to determine the requency o the actual use oeminent domain or economic development purposes between January 000 andDecember 004. Pending eminent domain cases and the threat o expropriationwere not counted in the survey. The measurement unit was the number o prop-erties taken by local governments. The results showed that about one-quartero the cities in the sample reported takings during the study period. A total o07 properties were taken, an average o less than two properties per city in veyears. Kayden concludes that state condemnation o private property or promot-ing economic growth is uncommon in the United States.

John Echeverria praises Kaydens eort in lling an important inormation

gap in the research on eminent domain. He thinks, however, that this surveywas limited by its ocus on large cities and exclusion o cases where local o-cials threatened to exercise eminent domain power. He is also concerned aboutreporting errors due to the sensitivity o the survey questions and the ambiguity

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in dening economic development purposes. Echeverria suggests a case studyapproach to investigating why some cities rely heavily on eminent domain to as-semble land as a supplement to nationwide surveys.

Conscation o an owners property is not the only orm o taking. I gov-ernment regulations limit all viable uses o a property and cause a substantialdecrease in its value, this in most cases is considered a taking, and the owner willneed to be compensated or the nancial loss. This is a controversial issue thatstrikes at the core o the debate over planning versus private property protec-tion. In chapter 9 Vincent Renard describes the diversity in the ways WesternEuropean countries deal with this matter. Legislation in both Denmark and TheNetherlands entitles property owners to be compensated or regulatory takings.There are no such legal provisions in France and Italy. Yet Renard cautions that

practices do not always ollow the legislation. For instance, French and Italianocials may negotiate with property owners about some orm o compensationeven though they are not legally required to do so. Although Denmark has ex-plicit rules or compensation, they apply to very restrictive cases only. In general,compensation or economic damages caused by land use planning is rarely paid.

In extreme cases in which the burden o planning alls disproportionatelyon selected property owners or when land use planning eliminates all reasonableuses o an asset, compensation is required under the jurisprudence o the rstprotocol o the European Treaty on Human Rights. Renard proposes compensat-ing aected owners with transerable development rights (TDRs). This approachrequires redening property rights and dividing the right to develop land intotwo types. One type is the development right that an owner paid at the time opurchase. The contents o this right are specied in the zoning law. The other typeis the development right that goes beyond what the land use regulation allows.Because the original purchase price o the property did not refect the ownersexpectation o obtaining this extra development right, the owner needs to buy itrom the government or rom other owners who have surplus development rightsor sale. The government will provide owners whose property is restricted byregulation with transerable rights as compensation or their loss o the rst typeo development right. The owners can then sell the development rights to anotherentity that needs them or high-density development.

Although this approach seems tenable in theory, Renard identies severalobstacles to its implementation. These include political and social resistance toredening property rights, the complexity o valuing TDRs, and the possibilityo disputes arising rom identication o the sending and receiving zones odevelopment rights across jurisdictions.

In his commentary, Barrie Needham disagrees with redening propertyrights as a solution to compensation or regulatory takings. He thinks that TDRs

have limited applications based on the British experience in nationalizing devel-opment rights in 947. I one analyzes the compensation issue o regulatory tak-ings rom the perspective o governments equal treatment o citizens rather thanprivate property protection, Needham asserts, it would be hard to argue against

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compensating owners who are disadvantaged by land use planning and not re-questing payments rom those who benet.

Needhams argument raises a concern about the symmetry between takings

and givings. Ideally, government could recoup the benets o land use planningand redistribute them to those who bear the costs. In this case takings compensa-tion is justied. Given the reciprocal nature o the matter, would it be sensible toargue against compensation or takings when there is no recapture o the benetso givings? Abraham Bell analyzes this subject in chapter 0. He concludes thatarguments or paying compensation or regulatory takings are compelling.

Bell rst examines the economic justication or expropriation compensa-tion to draw parallel lessons or the analysis o regulatory takings. Three argu-ments in avor o eminent domain compensation are () to keep government rom

underestimating the costs o takings; () to negate potential opposition rom prop-ertied interest groups; and (3) to minimize the risk o corruption. Bell claims thatthese arguments can also support paying compensation or regulatory takings.

Second, it is hard to argue against compensation or regulatory takings whenthere is consensus on the compensation requirement or eminent domain. Forinstance, i compensation were required or the use o eminent domain but notor regulatory takings, local governments would rely more on regulation thanon property expropriation to manage land use, even when expropriation is moreecient. This scal incentive can generate distortions. In addition, when realestate owners are not charged or public givings, paying compensation to ownerso condemned property but not to those whose assets lose signicant economicvalue due to government regulation raises issues o unequal treatment.

Third, Bell suggests that property taxes can be treated as both a taking com-pensation and a giving charge i the eects o land use regulation are ully capi-talized in property value. The positive eect o regulation (givings) will increaseproperty value and thus result in higher tax payments (giving charge). Similarly,a taking reduces asset value, which in turn lowers property tax liability. Yet prop-erty taxes are generally a small percentage o asset value, and tax reductionscompensate only a small percentage o takings. I capitalization is weak or ab-sent, property taxes will become even less compensatory. Bell thereore arguesthat property taxation cannot provide a strong reason or not compensating own-ers or regulatory takings.

Perry Shapiro, the commentator or chapter 0, adds two points to Bells dis-cussion o the symmetry o takings and givings. First, even i there were eectivecharges or public givings, the transaction costs o determining compensation orregulatory takings would be high. Litigation might be the only way, and the po-tential legal and political costs could induce local governments to lower land useplanning standards. Second, Shapiro questions giving special attention to com-

pensating landowners because any government intervention unavoidably createswinners and losers. For example, i a government policy hampers the protabilityand employment opportunities o an industry, should the aected manuacturersand workers demand compensation rom the state or their losses?

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Property Rights Approaches to Achieving Land Policy Goals

The use o property rights approaches to accomplish government goals has be-come increasingly popular. We ocus on poverty reduction, air and land conser-vation, and aordable housing.

Poverty reduction

One common objective o establishing secure private property rights in land,particularly in developing countries, is to reduce poverty. The World Bank andother international aid agencies have provided tremendous resources to improveland registration systems in many developing countries. As suggested by de Soto(000), secure land tenure reduces unproductive spending on protection o land

rights and lowers the risks o expropriation by the government. Both actorsencourage investment in land improvements, thereby increasing the net wortho the property. Property owners can use land as collateral or credit. Reliableinormation on ownership provided by the registration system reduces the riskso lending, thus expanding the scope o bank loans to acilitate property ownersentrepreneurial activities and create new wealth. In chapter Klaus Deiningerand Gershon Feder review the existing evidence on the validity o this logic.

The authors argue that strong tenure security appears to be connected withpositive investment eects when other avorable conditions are also present. Theycite such examples as the doubling o likelihood o soil conservation in Uganda,increased house renovations in urban Peru and Argentina, and higher investmentin Ethiopia shortly ater the issuance o land certications. Land registration alsoseems to acilitate the development o land rental markets, although its impactson o-arm employment remain uncertain. In Guatemala, or example, it isestimated that improving tenure security would increase total rental areas by63 percent. In Vietnam, holders o registered long-term use rights have a highertendency to rent their land to unrelated people than do land users who possessother tenure orms.

In terms o the impact on credit access, Deininger and Feder ound that theexpected benets o increased tenure security are limited, especially among thepoor. In Paraguay observable eects in the supply o credit were limited to me-dium and large landowners. Land registration in Peru increased the possibilityo obtaining loans rom state banks only. No eect o land registration on creditaccess was ound in Buenos Aires.

Why did credit-related benets o titling ail to live up to expectations?Deininger and Feder suggest decient institutional designs or private propertyprotection and credit markets as one reason. In some developing countries, gov-ernment institutions or enorcing registered land rights are weak or even absent.

Credible commitment rom the state to desist rom expropriation does not exist.Even i there is such commitment, it can be displaced overnight due to changes inpolitical regime. Corruption and bad governance o the land registry also lead to

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asymmetric access to inormation, thus acilitating land grabs by elites and un-dermining the credibility o the entire system.

In terms o credit markets, imperections and lack o liquidity are prevalent.

In rural areas where armers are subject to such risks as weather, fooding, andother natural phenomena, collateral does not protect lenders rom deault bymany borrowers at once. Farmers mostly need short-term loans, which are otenprovided by inormal credit markets in most developing countries. Because col-lateral is normally not required or short-term credit, the benets o registrationdo not justiy its costs. In some cases high registration costs due to ineciencyor inappropriate standards have led to the expansion o semiormal credit sys-tems or reversion to inormality. Risk rationing and ear o losing real assets alsodampen the willingness o potential borrowers to use titles as collateral.

Commenting on the comprehensive review o research on land titling byDeininger and Feder, Alain Durand-Lasserve suggests that a social dimensionshould be added to the discussion, especially on conficts associated with the pro-grams. The assessment o the eectiveness o land registration reorm in securingland tenure and diminishing poverty should be conducted by comparing the costsand benets o land titling to the eectiveness o alternative options that couldachieve the same objectives.

In chapter Edsio Fernandes cites similar arguments about the eects otitling programs on credit access in Latin America. He argues that the designs olarge-scale titling programs have been based on erroneous assumptions about theormation o inormal settlements. This error, Fernandes argues, has created alegal environment that osters inormal land market development.

In addition to the reasons provided by Deininger and Feder or the disap-pointing titling eects on credit access, Fernandes believes that income and socialnetworks are more prominent actors than ormal titles or obtaining bank loansin Latin America. He asserts that establishing secure private property rights alonecannot solve the problem o poverty. The poor need to be integrated into themarket economy. Public investments in inrastructure, aordable housing, andsocial services are required to upgrade urban living conditions. The key solutionor inormal land development is to understand actors that aect inormality,including the denition o property rights, planning law, conditions o urbanmanagement, and the judicial system.

Fernandes also suggests an integrated approach or land regularization pro-grams that contains both remedial and preventive policies. These include thepromotion o socio-spatial integration and democratization o access to land andhousing. He emphasizes that policy makers should pay special attention to dier-ent tenure arrangements or varied urban settlement settings, the objectives andscale o the plans, technical criteria or implementation, and institutional and

nancial capacity to support the projects.Although Ernesto Schargrodsky, the commentator or chapter , agrees with

Fernandes on the credit access impact o land registration, he disagrees that titling

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has no eect on poverty. Based on studies that he conducted with other scholarson a titling program in suburban areas o Buenos Aires, they ound positive in-fuences o secure property rights on investment in housing, childrens education

and health, and labor participation in the market economy. He hypothesizes thatland titling helps eradicate poverty through increased physical and human capitalinvestment, but not through access to ormal credit markets.

environmental conservation

Property rights approaches are also employed to achieve environmental conser-vation. Two specic topics are examined here: tradable emission permits andconservation easements. The implementation o the tradable emission permitsprogram (also reerred to as the ederal cap and trade program) or carbon diox-

ide (CO) departs rom past U.S. environmental policy, which has devolved mostregulatory powers over point sources to the states. The cap and trade programormalizes emission permission as a new orm o property right. The ederal gov-ernment will assign a CO

emission budget to each state, and the state will allot

the assigned permits to industries by public auction. The permits could then bebought and sold in a ederally managed trading program. Dallas Burtraw andRich Sweeney, the authors o chapter 3, estimate that the total value o the CO

program in the United States could amount to $30$370 billion annually by05. Thus, the design o the system or allocating tradable emission permits willhave signicant distributional and eciency eects on the U.S. economy.

The value created by the CO

program refects the cost o reducing green-house gas emissions. This cost will eventually be passed along to consumers in theorm o higher prices or direct and indirect energy consumption. Burtraw andSweeney estimate the distributional impacts o these price increases and suggestthat CO

policy could have heterogeneous eects across regions and populations

in the United States. For example, low-income households spend a higher pro-portion o their income on energy consumption than do high-income households.The authors propose various options to mediate the regressive incidence o thepolicy, including transerring 65 percent o the revenue generated rom auctioningthe permits to households on a per capita basis, excluding some basic necessityindustries such as the transportation sector rom the CO

program, and provid-

ing ree allocation to electricity consumers (retail utilities) based on consumption.The authors also project the eciency and distributional impacts o these

options based on simulation models. Their estimates indicate that a nationwideauction program with revenue returned on a per capita basis would be one othe two most ecient approaches among the options reviewed. It will howeverimpose a higher cost o electricity consumption on consumers in the Southeastand the Midwest, which have a relatively large number o coal-re-generated

electricity acilities. I the states allocate the permits to retail electricity consumerswithout charge, there are smaller deviations among the regions on their net CO

expenditures; but the estimated price or CO

increases by 7 percent (rom $4to $48 per mtCO

), indicating an eciency loss. Based on the results, Burtraw

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and Sweeney argue that the most likely scenario would be or the ederal govern-ment to apportion emission allowances to the states with special consideration tothe electricity sector. Each state would then auction the allowances and return a

portion o the revenue to households.In response to Burtraw and Sweeneys proposal, Wallace E. Oates agrees that

the ederal government ought to retain some control over the program, especiallythe aggregate number o tradable permits. He cites the experience o the EuropeanUnion (EU) program that allowed individual countries to decide on the numbero tradable permits to be allocated to industries. Because some countries set theircap too high, resulting in a large supply o permits in the EU trading system, theprogram was unable to achieve its environmental objective. Oates also proposesa price ceiling on permits and a banking system to allow unused emission allow-

ances to be carried over to uture periods.Another commonly used property rights approach to conserving the environ-ment is private conservation easements. In chapter 4 Gerald Korngold discussesthe benets o this policy and proposes methods to mediate some o his concernsabout the program. In essence, a conservation easement gives a nonprot entityor government a perpetual right to restrict changing the present use o the land.I the easement is donated to a nonprot, the landowner receives tax benets atthe ederal, state, and local levels.

Korngold argues that conservation easements have added tremendous valueto land preservation in the United States. The method alleviates the governmentsneed to spend scarce public resources on land conservation. It reduces the cost oacquiring land or conservation, because a nonprot needs only to purchase theright to develop land, and the other attributes o the bundle o rights remain pri-vately owned. An easement will not remove the property rom the tax roll, thusallowing the municipality to collect taxes rom the owner. The easement programis based on voluntary changes that could help government avoid controversygenerated by land use regulation.

Despite the benets o conservation easements, there are concerns. A tax sub-sidy is involved in donated conservation easements, and abuses o the tax codehave been reported. According to Korngold, nonprots do not always considerpublic benets when they establish easements, making it hard to know whetherorgoing the tax revenue is justied. Because the establishment o private conser-vation easements is based largely on the initiatives o landowners and nonprots,the location o easements may not be in accord with the community-wide preser-vation plan. Although the creation o easements involves public subsidy and landuse planning, nonprots are not subject to special regulatory processes to ensurethat their actions are in conormity with the public interest. Korngold notes thatmonitoring o easement stewardship by nonprots is modest (and sometimes ab-

sent). Conservation easements are sometimes perceived as a program designed orhigh-income households, because large land sites owned by individuals are nor-mally involved. Comprehensive data about the total number, location, ownership,and acreage o conservation easements are lacking. Finally, perpetual easements

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may add rigidity to land use. When economic and social conditions o a neigh-borhood change, more land may be needed or development. The control overthe modication and termination o restriction on large tracts o land by non-

prots could create legal diculty and uncertainty to land use planning.Korngold suggests the ollowing solutions. The tax code should be amended

to allow ederal tax deductions only i an easement has received prior ederal,state, or local certication as having a signicant public preservation benet.States should legally require counties to establish separate records or conserva-tion easements. To ensure the stewardship o nonprots, a voluntary accredi-tation program can be established. Alternatively, state attorneys general couldsupervise the nonprots. To increase the fexibility o conservation easements toadjust to uture land use needs, legal changes are required, including clariying

nonprot law, applying the rule that prohibits enorcement o covenants violat-ing public policy to the case o conservation easement reversal, relying on a cypres proceeding to permit easement modication and termination, and exercisingthe power o eminent domain to condemn easements.

Nancy A. McLaughlin disagrees with some o Korngolds concerns. She ar-gues that conservation easements are essentially public land rights acquired bygovernment or public nonprot entities and enorced by state attorneys generaland the Internal Revenue Service. Thus, the objectives o easements should not bein confict with the public interest. Land trusts are more accountable to the publicthan is the government because their survival depends on public condence anddonations. Because most conservation easements have no improvements on land,they can easily be converted to other uses without removal o physical structuresi a cy pres proceeding determines that the continuous protection o the land is nolonger possible or practical. Because most jurisdictions do not engage in eectiveplanning or land preservation, the argument that conservation easements do notconorm to community-wide plans cannot be established. Moderate modica-tions o conservation easements are not dicult because many deeds contain anamendment provision that grants the holder the right to alter the restriction solong as changes are consistent with the purpose o the easement.

affordable Housing

Increasingly, states are employing a property rights approach to conront ex-clusionary zoning at the local level. This approach relies on providing privatedevelopers with a density bonus or other zoning-related benet as an incentive tochallenge localities that do not comply with state mandates on aordable hous-ing. Viewing this rom a property rights perspective, extra development rights aretranserred to private developers as payments or actions to enorce state housingobjectives or actually build aordable units. In chapter 5 Keri-Nicole Dillman

and Lynn M. Fisher call these systems housing appeal regimes and use a gametheory ramework to analyze the behaviors o developers and municipalities so asto understand the diverse bargaining outcomes o the programs.

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From the developers perspective, Dillman and Fisher suggest that the deci-sion to challenge a noncompliant municipality depends on our preconditions:() a avorable market environment; () a high likelihood o winning the lawsuit;

(3) a sucient density bonus; and (4) a high possibility o recovering litigationcosts. Based on their model, they predict three possible outcomes. I none othe our conditions is present, the developer does not conront the municipality,rendering the antiexclusionary zoning program ineective. I the developer isuncertain about winning the lawsuit, she may be willing to accept the munici-palitys settlement oer o an impact-ee waiver or a permit that allows a higher-density development. I similar lawsuits have a suciently high success rate withadequate density bonuses to cover the costs o litigation and other inclusionaryrequirements, such as providing aordable housing units, the developer will not

settle the case out o court.How would these outcomes aect the behavior o the municipality? Ienough lawsuits create a credible threat to local exclusionary planning practices,the municipality could either amend its land use plan or remain reactive to devel-opers legal challenges. The decision will depend largely on whether the expectedbenets o changing zoning regulations are higher than the gains rom bargainingwith developers minus the costs o compliance. Developers can be seen as enorc-ers o state policy i their challenges alter the municipalitys exclusionary zoningpractice. They will be implementers i they adopt the role o providing aordablehousing or low- and moderate-income households.

Alexander von Homan suggests that one way to enrich the model is toconsider the dierential bargaining power o large and small developers. In mod-eling the behavior o the municipality, he argues, other interest groups such asconservation and historical commissions, town engineers, the zoning board oappeals, and existing homeowners should be considered. The municipalitysdecision-making process is thereore more complex than the current model de-picts. Without knowing interested parties motives, strategies, and actions at lo-cal and state levels, assessing antiexclusionary zoning programs will be dicult.

While the authors o chapter 5 study the strategic interplay between devel-opers and towns in making inclusionary housing decisions, in chapter 6 RobertC. Ellickson compares this aordable housing approach with the voucher pro-gram. He asserts that giving portable housing vouchers to needy households issuperior to encouraging private mixed-income housing projects through the useo density bonuses or impact-ee waivers. Ellickson reviews several eciencyand equity arguments. Mixed-income housing units are less ecient because thetransaction costs o applying or government subsidies increase production costs.Moreover, public subsidies reduce incentives or developers to be cost-eective.Mismatches between household preerences and housing units allotted emerge

when units are assigned by lottery. The lock-in eect prevents tenants rom modi-ying their housing consumption when economic and amily conditions change.Lock-ins also lead to the deterioration o the landlordtenant relationship. In

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terms o airness, vouchers are more equitable than mixed-income projects be-cause they target the most impoverished amilies. Ellickson states that many sub-urban mixed-income housing programs make some inclusionary units available

to households with moderate incomes.Ellickson also challenges the oten-cited benet o mixed-income housing

projects, that is, the promotion o neighborhood social and economic integra-tion. He argues that low-income households might not be able to t in withneighbors o higher social and economic status. Vouchers are more discreet andallow holders to blend into the community. More undamentally, he states thatevidence on the benets o social and economic integration is inconclusive. Giventhese doubts, the expected gains rom mixed-income projects do not seem tooset the potential loss o eciency and equity.

Ingrid Gould Ellen is more skeptical about the advantages o vouchers overmixed-income housing. She states that mixed-income housing projects couldgenerate positive externalities or revitalizing economically depressed neighbor-hoods. Physical improvements and population growth due to increases in mixed-income housing projects may spur private investment, which in turn creates jobsand improves the scal condition o local governments.

Ellen also provides dierent interpretations o the evidence mentioned inEllicksons chapter. For example, she argues that vouchers may increase rents orunsubsidized poor households. Roughly one-third o voucher holders were notable to use their vouchers in 00 because o landlord discrimination, bureau-cratic barriers to interjurisdictional transer o vouchers, and lack o inormationabout the availability o suitable rental units. As is the case with housing appealregimes, additional systematic comparisons o the voucher program and mixed-income projects are deemed necessary.

Conclusions

Ideas discussed by the chapter authors and commentators contribute to three im-portant areas o property rights research: () the design o property rights institu-tions; () property rights enorcement; and (3) policy applications. As illustrated,identiying a set o design principles or crating property rights institutions ispossible. Elements o the bundle o rights can be assigned to dierent parties de-pending on the purpose o delineating the private property rights. For instance, ithe goal is to manage the use o a commons where the mobility o participants islow, the denition and allocation o the use right are most critical, and the righto alienation is secondary. By contrast, i the purpose is to encourage ownersto invest in property improvements, the right to sell and transer the asset mustbe included explicitly in the assignment, as indicated by the experiences o land

titling. For conservation easements to exist, the right to develop land must beseparated rom land ownership. Dierent denitions and ownership o propertyrights may be required to meet varying needs and conditions. Building propertyrights institutions requires consistent and predictable outcomes.

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Property rights security depends on enorcement. When the conceptuali-zation o dierent claims to property is in fux, enorcing property rights ar-rangements is dicult and controversial. The ongoing debates over government

authority to regulate private property and to set compensation or takings inEurope, Latin America, and the United States illustrate the legal and politicalintricacy involved in maintaining balance between the property rights o publicand private entities. This constant renegotiation between the public and privatelandowners is the essence o the evolution o private property whose meaning isshaped by changing social, political, and economic conditions.

In countries where private ownership is emerging, credible commitment romgovernment as the guarantor and protector o individual property rights is essen-tial. History matters. I there is no track record o state protection o private prop-

erty, it will take a long time or citizens to trust the judiciary system and the polityto saeguarding o assets. Current land reorm experiences in China, Estonia,Russia, and Vietnam seem to support this argument.

Altering the assignment o property rights to accomplish policy objectivesalso seems easible, i the approach is accompanied with the development o othersupporting institutions. Land titling appears to have positive impacts on prop-erty investment, but its credit access eect remains inconclusive. Tradable emis-sion permits systems and conservation easements require heavy investments inlegal and administrative capacity to achieve their desired goals. More needs to beknown about how the net benet o these property rights approaches measuresup with other options. The improved understanding o the institutional issuesrelated to private property in general and property rights approaches as a policytool in particular is invaluable to land policy making and research.

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