Constitutional Law

Public Use Limitation in Takings: An Economic Analysis

Parv Tyagi

All takings of private property have to satisfy the requirement of public use, lacking which the taking fails. However, the courts have been highly deferential to the requirement of public use. This has defeated the political and economic logic of the limitation. The author here argues why equating the legal doctrine of public use with the economic doctrine of public goods holds a promising solution to the problem.


Eminent Domain, known in Canada and England as “expropriation”, is founded on the law of necessity, i.e., the common necessity of appropriating the property of an individual member of the community to the great necessities of the whole community.[1] The fifth amendment to the United States Constitution, provides that private property shall not be taken “for public use” unless just compensation is paid. American courts have long construed this to mean that some showing of “publicness” is a condition precedent to a legitimate exercise of the power of eminent domain. Thus, when a proposed expropriation of property lacks the appropriate public nature, the taking is deemed invalid. In practice, however, most observers today agree that the public use limitation is a dead letter.[2]

Likewise in India, the Supreme Court has tried to evade the full force of the public use test. It has been exceedingly deferential to legislative definitions of permissible public use. A survey of judicial decisions over the years confirms this view. More importantly however, these cases suggest that courts in India have no theoretical or conceptual foundation that guides their understanding of what constitutes public use.

The term public use is not capable of a precise definition. ‘Use’ is capable of two very different meanings: employment and advantage. So, in the United States, one line of cases holds that public use means use by the public, that is public employment.[4] Consequently, to make a use public, there must be a right on the part of the public to use the property after it is condemned. The opposing doctrine is that public use is public advantage, convenience, utility, or benefit and that anything which tends to enlarge or increase the resources or productive power of any considerable number of people, constitutes a public use.[5]

The courts in the US and in India, have unanimously resolved this textual dispute in favour of the broader public interest view. It is my argument that this view is flawed. It has led to an abuse of eminent domain for purely private purposes, thus defeating the political as well as the economic rationale of the limitation. The essay proceeds as follows. Firstly, I discuss the political and economic logic of the public use limitation. Secondly, I argue that equating the legal doctrine of public use with the economic doctrine of public goods is a promising solution to the problem that plagues the exercise of eminent domain. At the same time, I also point out how this account, although promising, may be too restrictive given India’s development needs. Finally, thus, I loosen the strict public use test such that it safeguards the individual right to property, while taking care of developmental needs. 

I. Public use

The first question concerns the nature of the public use limitation in the eminent domain clause. The Supreme Court gave the limitation a mortal blow in Sooram Pratap Reddy when it noted that “the concept of public welfare is broad and inclusive” enough to allow the use of eminent domain power to achieve any end otherwise within the authority of the legislature.[6] The judgement was a reiteration of an earlier case, Somavanti v. State of Punjab.[7] This has resulted in an endless expansion of the purposes for which state could acquire property.[8] There is good reason to believe that this understanding which trivializes the public use limitation, is incorrect. The court, in searching for a rationale behind state action, cannot supply a purpose the legislature itself did not have in mind.

In the liberal scheme, the power of the sovereign is constrained, so that the lives, liberties, and estates of citizens are preserved. The concrete measure of that constraint is found in the limits on the appropriation of surplus by the sovereign.[9] If the sum of all wealth in the state of nature is 100 and that in a political society is 150, then there is a surplus of 50. The sovereign is allowed to take from the citizens only that part of the surplus that is necessary to operate the state. The rest of the surplus subject to tax lien is divided among all citizens, pro rata in accordance with their private holdings. When the state acquires private property for public use, the public use limitation ensures “fair” allocation of surplus by preventing any interest group from wrongfully appropriating the surplus. Takings for private use are therefore forbidden. We can further obtain a better sense of how the public purpose clause regulates the distribution of surplus by a simple illustration.

Say A owns a property which he is prepared to sell for $100. B wishes to acquire that property and is prepared to pay up to $150 for it. Assuming there are no rival buyers, the sale price for the property should be some figure between $100 and $150. However, if B could resort to the eminent domain power, he could cut short the process of negotiation and acquire the property for $100, thereby appropriating the surplus. The public use limitation prevents precisely this. B, a private citizen, is prohibited from using the state’s eminent domain power to capture the surplus.

In sharp contrast, the state can force a private party to sell his property by paying an amount, equal to the owner’s best use of the property before condemnation, i.e., market value. In other words, the state is allowed to capture, without negotiation, all the transactional surplus, but only for the benefit of the public at large.

An expansive interpretation of public use leads to a heightened interest group activity. Take two individuals A and B. Say A obtains special knowledge of B’s designs on his property, which is likely to increase its value. Assume further, that A being a powerful individual can influence the government to condemn B’s property. The one-on-one bargaining situation will now simply transfer into a different arena. Now, A will expend resources not only in negotiating with B, but also in influencing legislative outcomes.[10] Indeed, if A is able to find other parties who are similarly situated as him, it will only increase the stakes of the game and give rise to more rent seeking. A strong public use limitation thus helps curb these abuses, by limiting the scope of partisan activities by constraining executive and legislative discretion.

II. Public Use and Public Goods

How to draw out a constitutional line between public and private uses? A promising approach is to equate public use with the economic theory of public goods. Under the standard theory of public goods, the element of non-exclusivity is to be satisfied.[11] Non-exclusivity means that the good is available to all citizens. Or, that it is impossible for one user to exclude others from using a good. National defence, is an example. The act of providing protection for one citizen also provides it for his neighbour. Thus, the taking of land for a naval shore installation cannot give rise to the abuse where one individual calls upon the state to do something he is unable to do himself. The property remains in the control of the State, and no private party subsequently obtains an interest in the condemned property. This provides a powerful guarantee that the surplus will not be appropriated by any individual but will be divided among the public at large.

However, this account is too narrow, as it would exclude, for example, the condemnation of lands for a public highway. To be sure, public highways differ from national defence. National defence is a public good because of the nature of the benefit provided: a citizen is protected by the military whether he likes it or not.[12] By contrast, highways or parks furnish benefits that the individual citizen is able to refuse if he wants to. Also, unlike defence, highways or toll roads could be made private if the government so choses.

III. Proposed Alternative

We are definitely caught on the horns of a dilemma if public use is construed strictly to mean public goods. The needs of a developing country such as ours would be jeopardised. To resolve this dilemma, I propose one exemption to the strict public use. Take the highway example. The highways are operated under the conditions appropriate to common carriers: the service is open to all who meet the minimum requirements of fitness to be served. So long as all individuals have the right to use the facility on these terms, the public use requirement is satisfied, even if all individuals cannot simultaneously use it.[13] The near universal access is designed to ensure that no small group of individuals is able to capture the entire surplus to the exclusion of others.

There is a further sense in which my account does not limit the powers of the state, yet protects individual rights: there is no need for continued government ownership of the property after condemnation, like in case of public goods. The property taken can be conveyed to private parties subject to the appropriate common carrier restrictions stated above. This would both ensure efficiency and at the same time, prevent the abuse of eminent domain by limiting its use to only direct benefits in which the entire or near entire public shares.

What do I mean by direct benefits? Suppose that the state takes over property which is then conveyed to a private firm to be used in its ordinary course of business. Say this leads to economies of scale for the firm. The public obtains benefits in the form of lower prices for the firm’s output. But to allow this form of indirect public benefit to satisfy the requirement for a public use is to make the requirement wholly empty.[14] Thus, a further requirement, besides public good and common carrier, that a taking must fulfil should be that of direct benefit.


The key to understanding eminent domain follows from two points: necessity and division of the surplus. First, there must be an effort to limit the class of forced exchanges to those which are induced by some situational necessity. Now it is an open question whether this is sufficient to satisfy the demands of public use. This is where the strict interpretation of public use comes handy. The basic theory of public use demands that in forced exchanges, the surplus must be evenly divided. However, since this account is too restrictive considering economic realities of a country like ours, the test could be loosened. One, the state could be allowed to take private property for goods other than public goods, provided common carrier restrictions are met. Two, only direct benefit, and not incidental or indirect benefit arising out of a project must, be allowed to pass the muster of the public use test.

To end, the case is straightforward. The public use limitation deserves more respectful treatment than it receives today.

Parv Tyagi is a second year law student at National Law School of India University, Bangalore.

[1] Epstein R, Takings (Harvard University Press 2005), at p. 4.

[2] Id at 21-22.

[3] Merrill T, ‘Economics of Public Use’ (1986) 72 Cornell Law Review, at p. 62.

[4] Id at 64-65.

[5] Ibid.

[6] Sooram Pratap Reddy v. District Collector Ranga Reddy District, 2008 (9) SCC 552, para 67. 

[7] Somavanti v. State of Punjab, (1963) SCR (3) 774, para 16.

[8] The LARR Act of 2013 requires that state acquisition of private property must be for a ‘public purpose’. But, it does not define ‘public purpose’. Instead, section 2(1) provides an enumerated list of what constitutes ‘public purpose’. These purposes are cast in very broad terms and include acquisition for private companies.

[9] Supra n.4.

[10] Supra n.1 at 166.

[11] Ibid.

[12] Supra n.1 at 167.

[13] Supra n.1 at 168-170.

[14] Merrill T, ‘Economics of Public Use’ (1986) 72 Cornell Law Review.