3.2 Who should pay compensation
The question of whether compensation should be paid cannot easily be separated from the question of who should pay it. A crucial factor here is the incentives that are created by a liability to pay compensation.
Incentives on government, taxpayers, lobbyists and investors are all crucial to the takings issue. When compensation is funded by taxpayers, there is likely to be less effective scrutiny of cost and a greater incentive to achieve the goal by regulatory means rather than an explicit taking, although on the plus side there is a chance that greater transparency will generate an improved outcome.
Requiring beneficiaries to pay the costs of a taking can in theory create better incentives even when compensation is not due (Wilkinson, 2001). When compensation is due, and the beneficiaries of a taking are clearly identifiable, there is a strong argument in both efficiency and equity terms for the compensation to be paid directly by the beneficiaries.
This argument can be extended. As noted above, principles such as compensation for eminent domain can be crucial to maintaining the consent of citizens that underlies effective government. Consent itself, of course, can be debateable when it relates to redistributive actions of government in a majoritarian system.
This has led to suggestions such as supra-majorities for non-proportional taxes, funding redistributions from within those who voted for them or applying public interest tests to the purposes of taxation (Wilkinson, 2001). Another example is Epstein’s (1985) approach of proportional distribution of the benefits of a taking among the parties to the forced exchange. Where there was a true public benefit and therefore a net surplus, this would result in compensation above market value (Wilkinson, 2001), which could be particularly appealing (in terms of public acceptance of the legitimacy of takings) where private parties were exercising eminent domain.
As with the efficiency of compensation debate reviewed above, issues of practicality would severely constrain such solutions. This does not, however, preclude it being of value in particular cases.
