Vol. 5 No. 11 (November, 1995) pp. 267-269

REGULATORY TAKINGS: LAW, ECONOMICS, AND POLITICS by William A. Fischel. Cambridge: Harvard University Press, 1995. 415 pp. Cloth $45.00

Reviewed by Marc Allen Eisner, Department of Government, Wesleyan University.

REGULATORY TAKINGS by William Fischel is the most recent contribution to a growing body of literature on the takings issue. In this rich volume, Fischel critically assesses the central debates on the regulatory infringement of property rights, the adjudication of disputes surrounding regulatory takings, and the weighing of key values that should be addressed in the process. In Fischel's words: "The overriding theme is that the comparative advantage of constitutional courts in protecting property rights is to intervene when the economic protections of 'exit' and the political protections of 'voice' are attenuated. The issue of fairness and efficiency that underlie the takings issue should otherwise be left to the political branches of the state and federal government" (p. 5). In arriving at this conclusion, Fischel takes the reader through a fascinating set of arguments and debates.

As one might expect, Fischel begins the book with a discussion of PENNSYLVANIA COAL V. MAHON, the 1922 decision that framed the takings debate. The dispute before the court addressed a Pennsylvania state law (the Kohler Act) which prohibited mining in built-up areas because the extraction of anthracite coal could result in subsidence. The problem with what appeared to be a reasonable law was that surface property owners had acquired their land having been given explicit warning that the mining concern would not assume liability for damage to surface structures. Presumably, the information that the coal company was not liable and the resulting risk were reflected in land prices. In passing the Kohler Act, the Pennsylvania legislature was transferring property from one party (the coal companies) to another (the land owners) without compensation. The Supreme Court found on behalf of Pennsylvania Coal. The majority decision, written by Justice Holmes, concluded: "So far as private persons or communities have seen fit to take the risk of acquiring only surface rights, we cannot see that the fact that their risk has become a danger warrants the giving to them of greater rights than they bought." Stated another way, "it is not plain that a man's misfortunes or necessities will justify his shifting the damages to his neighbor's shoulders. We are in danger of forgetting that a strong public desire to improve the public condition is not enough to warrant achieving the desire by a shorter cut than the constitutional way of paying for the change" (p. 21).

Fischel's examination of PENNSYLVANIA COAL draws on an exploration of the historical record as developed through archival research and interviews. This analysis, when taken by itself, more than justifies the publication of the volume. Fischel's investigation reveals much of interest. The two most interesting findings are as follows: First, the Pennsylvania legislature passed the Kohler Act along with the Fowler Act -- the two must be understood in tandem. Under the Kohler Act, mining in developed areas was prohibited due to the possibility of subsidence. Individuals could get a court injunction to stop mining beneath developed areas. However, the Fowler Act imposed an "optional" tax on anthracite which would be used to repair damages caused by subsidence. If mining companies paid the Fowler tax on their operations statewide, they would receive an exemption from the Kohler Act. Thus, the act that was central to the dispute in PENNSYLVANIA COAL was more a means of extracting revenues than it was a means of protecting the property of land owners. Second, despite the rhetoric surrounding the decision, PENNSYLVANIA COAL had a policy of repairing structures damaged by its mining operations. Why would the company assume liability even when they it was explicitly exempted under the provisions of the land contracts? Fischel argues that the answer can be found in the need to maintain a positive public image and the integration of company employees, town people, and corporate executives.

The conflicts in PENNSYLVANIA COAL are similar to those that exists in many policy arenas today. Zoning disputes, land-use policy, and a host of additional regulatory policies involve the transfer of property rights without proper compensation -- supposedly in pursuit of the public interest. The remainder of REGULATORY TAKINGS addresses the issues of how best to resolve the disputes inherent in these situations and where the authority over critical decisions concerning the transfer of property rights should be located. Fischel's examination in chapters 3-5 is comprehensive, viewing the takings issue via the analytical frameworks offered by the Madisonian critique of majoritarianism, John Hart Ely's political process theory, Frank Michelman's work on just compensation, Richard Epstein's reflections in TAKINGS, and the economic arguments associated with the rational choice perspective. Fischel's examination is a critical one, clearly revealing his disagreement with some of the competing approaches to the takings issue. Thus, he is troubled by Epstein's preference for the judiciary over majoritarian institutions. The courts commonly make decisions without sufficient information and one may always be vulnerable to shifts in judicial basis. "What is to prevent a future court, influenced by a Rawlsian rather than a Nozickian view of the good society, from insisting that Congress must raise income taxes to their Eisenhower-era levels?" (p. 182) Similarly, Fischel understands the limitations of his own economics discipline in addressing the takings due to its incapacity to address issues of fairness: "the issue involves fairness as well as efficiency. Economists are uncomfortable with fairness issues and the concept of demoralization costs, because they seem so mushy we have no metric for them." (p. 217).

Fischel's concerns are not merely technical. Rather, they reflect a faith in democratic processes and institutions that run throughout REGULATORY TAKINGS. Thus, while the economics of takings are important, "a self governing people has to decide about takings and related wealth-distribution issues through the institutions that it creates." (p. 217). Fischel examines the empirical case in Chapters 6-8, considering the record of land use policy in California and the role of local government. Fischel recognizes the communitarian benefits of local government but also the potential dangers when a majority of residents outvote the owners of undeveloped lands to claim some of their property rights. "If there is to be any limit on regulation under the Takings Clause, some limit on the scope of the desirable communitarian values embodied in local government regulations must be established." (p. 288) In Chapter 8, Fischel argues that legislatures at the state and national level provide a better venue for addressing takings issues than does local government due, in part, to the opportunities for coalition building. Where exit or voice are not options at the local level, Fischel finds judicial intervention to be justified. This is, however, a very limited role for the courts. Where courts have to intervene in these matters, Fischel argues in the concluding chapter, they should appeal to a standard of normal behavior which would determine the acceptability of a proposed use of property on the basis of historical practice. Compensation would be due largely in those cases in which a decision was made to depart from historical patterns.

REGULATORY TAKINGS is a fine contribution to the literature. It is logically arranged, coherently argued, and written with flair and humor. It is limited only in its focus. Despite its title, it is restricted largely to land use policies. One wishes that Fischel would have departed from his area of substantive expertise to consider the application of the debates to a more diverse set of regulatory policy issues (Compare this volume with Richard Epstein, BARGAINING WITH THE STATE on this score). Despite this limitation, Fischel's book likely to assume a place next to other classics in the field and shape future discussions of the takings issue. This volume should be widely read by scholars of public law, law and economics, regulation, and public policy.

References:

Epstein, Richard A. 1985. TAKINGS. Cambridge: Harvard University Press.

____________. 1993. BARGAINING WITH THE STATE. 1993. Princeton: Princeton University Press.

PENNSYLVANIA COAL CO. VS. MAHON (1922). 260 U.S. 393 P>