Courts, Legislatures, and Property Rule Changes: Lessons from Eminent Domain During the 19th Century Railroad Boom

Robert K. Fleck (Clemson University)
F. Andrew Hanssen (Clemson University)

Abstract: As property rules “evolve” in the face of changing circumstances, courts and legislatures shape the process. Although recent theoretical work has articulated a tradeoff that can render either the judicial or legislative branch the preferable institution in which to vest rule-changing authority, empirical analysis of the subject remains scant. In this paper, we assemble a data set that enables us to study judicial and legislative modifications to a property rule – the benefit offset – that was widely employed by railroad companies during the 19th century to reduce required compensation for land taken through eminent domain. At the beginning of the railroad boom, all states allowed the benefit offset; by the end, most states had banned it, some via court decisions, others via legislation. We develop a theoretical model that allows for interaction between a court and a legislature, where both the court and the legislature act as (imperfect) agents of the public. The patterns apparent in the data support the model’s predictions: 1) challenges to the benefit offset generally began with litigation; 2) all states that litigated the offset eventually restricted it, but not always through litigation; 3) where courts chose to allow the offset, legislation restricted it, often with substantial lags; 4) the lags suggest not legislative ineffectiveness, but rather litigation launched when the offset was socially valuable (i.e., early in the track building process). Our model, econometric findings, and historical analysis show how giving both the court and the legislature the power to alter property rules establishes a redundancy that can expand the scope of rules the public will be willing to delegate.


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