ECON 367 Lecture Notes - Lecture 57: Sunk Costs, Externality, Obiter Dictum
Document Summary
Held: compensation, but obiter suggests an exception to regulate a nuisance even if with substantial diminution of value. Reasons: famous case: environmentalists v property rights advocates. Nuisance exception focused reasoning on balancing the rights of property owner with the social harm. Balance the purpose of the regulation (public good) and the effect on private rights (private bad) Similar to the lucas v. south carolina coastal council case. Similar to the takings model, except the cost x is constant. Developer has a parcel of land with two possible uses: Requires an initial non-recoverable investment of x (sunk cost) Net return is va - x x could be planning, site development, legal costs, etc. Assume without a regulatory threat, landowner maximizes profits pursuing use a. Va - x > vb or va - vb > x (see: actual land use decision - full compensation) E = external cost associated with development, use a. Beach erosion, toxic runoff, damage to wildlife habitat.
