Eminent Domain Takings and Economic Development: The Effect of State Restrictions on Metropolitan Area Economic Development

The Supreme Court's Kelo decision upheld local governments’ right to use eminent domain in furtherance of an economic development plan under the premise that their public purpose includes the jobs and tax revenue generated by such developments. Following Kelo , 21 states effectively banned economic development as a justification for eminent domain condemnations. Whereas previous research examined the impact of eminent domain restrictions at the state level, this paper's focus is at the metropolitan-area level, where the inefficient underassembly of property that eminent domain is meant to correct is most acute. Difference-in-differences methods found that metropolitan areas in states that restrict the use of eminent domain experience statistically significant negative treatment effects on employment and earnings following the restrictions. As four Supreme Court justices have indicated a willingness to reconsider Kelo , these findings provide further insight into the economic assumptions supporting the ruling.