Suppose that a wealthy nihilist owns a Frank Lloyd Wright home and announces a completely credible intention to burn it down. Should the state be able to condemn the property and, upon paying the nihilist fair market value, transfer it to the Frank Lloyd Wright Trust, a private entity that announces (again, completely crediby) an intention to turn it into a museum?
The holding of Kelo (and earlier cases like Berman v. Parker) suggest an affirmative answer, and I believe that the state should be able to use the eminent domain authority to condemn the home from the nihilist and transfer it to the preservationist. There is a strong economic argument for liability rule protection in this hypothetical, as opposed to property rule protection. There are probably enough people (neighbors and non-neighbors) who would derive substantial "existence value" from knowing that the home survives and value the option of being able to drive by it or take a tour to outbid the nihilist in a world of no transaction costs. But high transaction costs will probably prevent those people from getting together and outbidding the nihilist for the home, even though they are the highest value users. So unless there are a large number of nihilists out there who derive "non-existence value" from the home, it would seem that using the government's eminent domain authority to preserve the home is welfare maximizing.
Now, I think Will is still going to object, which might make for an interesting discussion. Where will he go with his objection? Well, he might make a non-welfarist argument and say that the nihilist is trying to destroy the home for expressive reasons, in which case there might be a First Amendment problem with the government's actions. If that's the basis for his objections, then I'll be sympathetic, since I'm on record as having articulated that precise concern in an earlier paper on the subject. (I'm not aware of any court case that invalidates an exercise of the eminent domain authority on First Amendment grounds, but maybe that will change one day.) If Will tries to make a welfarist argument, then it strikes me that he will be defending more difficult terrain. (He might say that eminent domain is too cumbersome, but that sort of begs the question. If we think that is the problem, then we can address it doctrinally, as some states have done with "quick take" provisions).
Two major problems with Kelo were the speculative nature of the government's use of the land (the government basically wanted to keep the land underneath Kelo's home in reserve for future uses), and the political corruption inherent in the governmental decision making (as my colleague Richard Epstein likes to stress, the politicos decided to spare their favorite watering hole from eminent domain, even though it stood near Kelo's home). But in our Frank Lloyd Wright hypothetical, we take those concerns away. Preserving the home is its higher value use, and the government is merely acting to transfer property to a higher value user. Permitting eminent domain in this case is a lot like creating tort causes of action for nuisances or doctrines striking down unreasonable restraints on alienation -- they limit some property owners' rights somewhat in order to benefit neighbors and society as a whole.
My intuition is that if the Frank Lloyd Wright case had gone up to the Supreme Court and the exercise of eminent domain had been upheld, there would have been no public outcry. I believe that thoughtful people tolerate eminent domain for the purpose of creating roads or airports because they recognize that these types of uses will usually enhance social welfare, and they resisted the use of eminent domain in Kelo based on skepticism about whether the government was a good agent for the public's interests there. Ordinary uses of homes (living in them) are valorized and antisocial uses of homes (burning them down or letting their facades fall into disrepair) are viewed with great skepticism. This account certainly explains why Justice O'Connor was quite troubled by Kelo, but not by similar earlier cases like Midkiff (in which she wrote the opinion of the Court upholding the exercise of eminent domain to upset a land oligopoly) and Berman v. Parker (which authorized eminent domain for the purposes of slum clearance). So please tell me where I'm wrong.
UPDATE: Will has an interesting response here. His gist is that our approaches to this issue ought to depend on our baseline view of government competency, compared to “market competency.” Agreed. But then he says the government should still have to buy out the nihilist if it wants to transfer the property to the preservationist. I guess I’m still not sure why he comes out the way he does on these facts. We are dealing with a hypothetical in which the government’s ability to identify a higher (though perhaps not highest) value user is assumed. We’re also dealing with nihilistic preferences that most citizens would deem antisocial, so “counting” them at all in the welfare calculus is controversial, as is making the government pay to compensate the owner for frustrating his antisocial preferences. Where people have antisocial preferences of this kind, we might worry about whether they’ll negotiate optimally, particularly if a deep-pocketed government is on the other end of the table. That is, transaction costs prevent Will’s auction from working properly in the face of dispersed existence values, and bounded rationality combined with strategic behavior can prevent efficient bargaining between the government and the nihilist. Surprisingly, Will goes on to accept government regulation to prevent destruction (albeit with compensation). I don't see why, from the nihilist's perspective, that's better than a forced transfer of the property to the Frank Lloyd Wright Trust (again, with compensation). The nihilist wants to destroy the house, and he's just as thwarted by the anti-destruction regulation as he is by the exercise of eminent domain. So let's step back. Why does my hypothetical matter? Comparing my hypothetical with Kelo allows us to pinpoint why Kelo might be troubling (or not). This in turn allows us to construct an account of the circumstances under which eminent domain should be tolerated, and the circumstances under which it should be curtailed.