Pinning Down Subjective Valuations: A Well- Being-Analysis Approach to Eminent Domain
In 1999, Palm Beach County commissioners authorized an eminent domain action against John and Wendy Zamecnik, taking the home that they had “fall[en] in love with” and “never wanted to leave” after twenty years of ownership in return for its fair market value—the amount someone less connected to the home would have been willing to pay. The purpose of the eminent domain action was to build a golf course in a county that “ha[d] more golf courses per capita than any county east of the Mississippi River.” The low value of an additional golf course is reflected in the subsequent events: the land sat vacant as the county failed to follow through on the plan for a golf course, and eventually, in 2006, the land was sold to a local university at a substantial loss.
The wastefulness in this example highlights the potential value of an eminent domain compensation standard that, consistent with the indemnity principle, would make the owner whole. Were county officials to know and pay the Zamecniks’ (presumably) high subjective value of their home, as opposed to the constitutionally required compensation of its fair market value, adding a golf course may have seemed less justified.8 However, determining exactly how much the Zamecniks valued their property is difficult, and scholars have struggled to come up with practical estimates in such situations. This Comment proposes using a well-being-analysis approach to estimating the subjective valuation of homes such as the Zamecniks’. Such an approach involves measuring the effects of eminent domain tak- ings on reported life-satisfaction levels through surveying individuals, including people like the Zamecniks, who are involved in eminent domain.
The constitutional record in eminent domain jurisprudence expresses a commitment to making individuals such as the Zamecniks “whole” as part of paying just compensation under the Fifth Amendment. However, federal law and the majority of states offer only fair market value, which generally undercom- pensates takees. The Supreme Court has settled on fair market
compensation because revealed-preference approaches to esti- mating the subjective valuation of homes are generally problematic, and approaches that ask individuals to valuate their property subjectively provide incentives to lie. Courts use this second-best solution primarily due to the lack of a practical way to estimate subjective value. In addition, only a small minority of states use adjustments to fair market value estimates to com- pensate for subjective value, and among those states there is disagreement about what the proper adjustment is.
The lack of a true indemnity principle is implicated by current eminent domain controversies that focus on public use, and even members of the Supreme Court have questioned the fairness of this absence. The strong public reaction against the Court’s decision in Kelo v City of New London was notable, and at least one scholar has argued that the strong reaction to economic development eminent domain is due in part to the “paltry compensation” to owners who are excluded from the “benefits of whatever renewal (if any) it accomplished.” In fact, several justices in the
Kelo oral arguments were “bothered” by the undercompensation concern that arises from paying only fair market value, with one justice pointing out that such undercompensation occurs while a private party profits at the original owner’s expense. Indeed, the opinion itself acknowledged the “importan[ce]” of “questions about the fairness of the [fair market value] measure of just compensation” raised in the amicus briefs, indicating that the time may be right to push for a reevaluation of the standard. As such, among scholars, the Kelo decision has prompted calls for a renewed look at the accepted compensation approach.
Despite the seriousness of this problem and the ripeness for a solution, there have been no proposals that workably estimate the difference between an owner’s subjective valuation of her property and the property’s fair market value based on similarly situated individuals’ valuations (which this Comment refers to as the “subjective-value premium”). The lack of a solution means that, on average, two thousand (often underprivileged) individuals per year in the United States are threatened with bearing the cost of this difference, and that is counting only “filed or threatened condemnations for private parties.” This Comment argues that the Court’s acknowledgement of the problems with fair market value and its apparent concern about undercompensation are an invitation to create a practical measurement that is more accurate than fair market value. A well-being analysis, which uses hedonic psychology to measure and collect data on changes in people’s subjective well-being in response to various events, could be applied to provide the workable solution that Fifth Amendment jurisprudence requires. By using regressions on individuals’ assessments of their own levels of happiness in longitudinal surveys, hedonic psychology can assign a financial value to intangible losses.
The advances that a well-being analysis offers in valuation techniques give courts an opportunity to deviate from the fair market value measure of compensation. Such analysis has the potential to render inapplicable the Supreme Court’s assumption underlying the current determination of fair market value as just compensation. Specifically, a well-being analysis would provide courts with an estimate of the hedonic costs of the owner’s displacement from a home for which she is paid only fair market value, and it would assign these costs a monetary value so that courts could add them to the fair market value of the taken property. In addition, this approach can be used to assess state laws that provide supra–fair market value compensation and to inform future laws with the same aim.