The owners of property taken for public use are often compensated for their loss. Compensation based on market value is known to create a moral hazard problem and induce inefficient investment. However, no compensation, while efficiency inducing, is not a feasible, or desirable alternative, because it is perceived to be unfair: individual landowners crushed under the governmental leviathan. An alternative is proposed for public projects (as road construction) for which all benefits are incorporated in land values. In this case compensation based on the value of a property had it not been taken, rather than its market value prior to the public project, is both efficient and fair.

Most existing models of fiscal competition between states within federations or regional unions share at least two common features. First, they focus on inter-jurisdictional competition in but one policy instrument, for example, taxes, public goods or environmental quality. The second is that the models capture policy competition as a game and analyze the nature of the Nash equilibrium without considering existence. We recognize that jurisdictions wish to choose efficient policy packages (Non-malevolence Theorem) and this allows us to examine the existence of equilibrium when there are multiple policy instruments. Sufficient conditions for existence are established followed by three examples. In the first, the sufficient conditions are satisfied, guaranteeing existence. For the second example, the sufficient conditions are not met but an equilibrium exists, while in the third example there is no equilibrium. The analysis shows that existence is by no means assured in fiscal competition models and much depends on the particular specification of the model employed.

We devise and apply a new method for estimating demand for local public goods from survey data. Individuals' responses to questions about whether they wanted more, less, or the same amount of various local public goods are combined with observations of their incomes, tax rates, and the amounts of actual spending in their home communities. Parameter estimates turn out to be quite similar to those found with studies like Bergstrom and Goodman's study based on total expenditures across communities.

Land can be inefficiently allocated when attempts to assemble separately-owned pieces of land into large parcels are frustrated by holdout landowners. The existing land-assembly institution of eminent domain can be used neither to gauge efficiency nor to determine how to compensate displaced owners adequately. We take a mechanism-design approach to the assembly problem, formalizing it as a multilateral trade environment with perfectly complementary goods. We characterize the least-inefficient direct mechanism that is incentive compatible, self-financing, protects the property-rights of participants, and does not assume that participants have useful information about the subjective valuations of others. The second-best mechanism, which we call the Strong Pareto (SP) mechanism, utilizes a second-price auction among interested buyers, with a reserve sufficient to compensate fully all potential sellers, who are paid according to fixed and exhaustive shares of the winning buyer's offer. It may also internalize local externalities. While the SP mechanism only approves efficient sales, efficiency is not sufficient for sale---even with competitive bidding---because the auction reserve may exceed the aggregate seller valuation. The inefficiency of the second-best mechanism implies a Myserson-Satterthwaite (1981)-style impossibility theorem. We propose a criterion that encompasses concern for both efficiency and the rights of property owners to evaluate the relative performance of assembly mechanisms and the efficiency cost of strict adherence to individual rationality. In a simple example, we compare the expected outcome of the SP mechanism with two alternatives: a plurality mechanism based on SP, but with a lower reserve that is only high enough to fully compensate a plurality of owners and a stylized model of eminent domain.

This paper conducts an empirical test of whether local governments spend more or less than a Pareto optimal amount on local public goods. Our procedure is to check whether the Samuelson first order conditions ) for efficient provision of public goods are satisfied.