Recent years have seen the growth of an extensive gametheoretical literature that has sought to harness a wide range of self-assessment mechanisms, especially in connection with real estate. The motivation for this literature is both simple and powerful: people ordinarily have an incentive to conceal their true valuations of their various properties in a number of public functions, most notably real estate taxation on the one hand and land condemnations on the other. This literature hopes to create a set of socially constructed incentives to induce property owners to make an honest estimation of their own reservation prices when governments wish to take or tax these properties. In some cases, the models are limited exclusively to interactions between the government and the property owner. In still other situations, typically with real estate taxation, these models allow any private person to acquire private property by bidding in at the self-assessment amount that property owners set for the property.
One minimum feature of viable self-assessment models is that they must bite both ways. It is not sufficient, for example, for the model to punish private owners who undervalue their property if they can overvalue it with impunity. The same arguments apply in reverse, so that the mechanisms will do no good if they penalize owners who overvalue their property, while giving a free pass to those who undervalue theirs, which can happen in self-assessed taxation schemes. To make matters worse, the correct set of marginal incentives must deal not only with the behavior of the private owner of the property but also with the party, private or public, that wishes to force the transfer of ownership at the stated valuation. It is far more difficult to get systems that can put effective constraints on both sides of the market simultaneously than it is for those schemes that deal with one side of the market only.
One key feature about this current debate is this discontinuity with social practice. The spirited academic interest in these self-revelation devices is not matched by any practical move to implement them, even on an experimental basis, in any active real estate market. That reluctance should not be attributable to any great public satisfaction with the current operations of the market for real estate taxation or eminent domain. Some thirty years ago, Professor Saul Levmore wrote an eerily insightful article that urged the operation of these self-assessment systems for real estate markets and pointed out the deficiencies with real estate assessment in terms that apply today. On the other side of the picture, the many cases that deal with valuation under the current eminent domain rules also provoke extensive objections from those who think that the system is too stingy with the awards that it supplies and others who think that the compensation offered is sometimes too generous.
That dissatisfaction with the current state of affairs often brings forth anguished cries for discrete modification of the current system, so that it takes into account the loss of goodwill from the condemnation of business property or makes explicit allowances for moving expenses of persons who are forced out against their will. But at no point are there practical proposals, such as those implemented one hundred years ago with the widespread adoption of a workmen’s compensation law in place of the traditional tort system. Why then the inertia on selfassessment systems?