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Constitutional Baselines by Virtual Contract: A General Theory and Its Application to Regulatory Takings

Wesley J. Liebeler and Armen Alchian
Supreme Court Economic Review
Vol. 3 (1993), pp. 153-188
Stable URL: http://www.jstor.org/stable/1147067
Page Count: 36
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Constitutional Baselines by Virtual Contract: A General Theory and Its Application to Regulatory Takings
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Abstract

In Lucas v South Carolina Coastal Council, the Supreme Court held that a regulatory taking, for which compensation must be provided under the Fifth Amendment, occurs when the government institutes a new rule that prevents all economically beneficial use of a parcel of real estate. The Court also concluded, however, that the government remains free to deprive landowners of such use, without providing compensation, if the government's decree simply makes explicit the restrictions already placed on land use by background principles of property and nuisance law. Professors Liebeler and Alchian criticize the Court for its failure-only most recently manifested in the Lucas decision-to identify the specific constitutional standards that constrain the government's power to seize property without compensation. Drawing on the logic of the common law and on recent advances in the theory of specialized assets, the authors argue that the Court can and should enforce identifiable "virtual contracts" that are implicit in the Constitution and the common law. Only by enforcing these virtual contracts can the courts achieve the "average reciprocity of advantage" referred to by Justice Holmes in Pennsylvania Coal Co. v Mahon. That approach would require a judgment for the landowner in Lucas quite apart from issues of state law, and reevaluation of a wide range of other constitutional issues.

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