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894 The George Washington Law Review [Vol. 78:870
B. Frank Michelman’s Analysis of Property, Utility, and Fairness
Frank Michelman, in what is arguably the single most significant
article on the subject, adopts a utilitarian approach to regulatory takings.
124 He explains that redistributions of property due to collective
action occur because they have been deemed efficient, or when “it has
been determined that a change in the use of certain resources will
increase the net payoff of goods . . . to society ‘as a whole.’” 125 However,
according to Michelman, these redistributions are likely to be
especially demoralizing to property owners. 126 Relying on the philosophy
of Jeremy Bentham, Michelman explains that a “high level of productivity
depends on arrangements which assure to every person who
invests or labors that he will share in the fruits of his investment or
labor to a predictable extent.” 127
Michelman explains that the government must incur either demoralization
or settlement costs, whichever is less, each time it redistributes
property. 128 Demoralization costs are defined as
the total of (1) the dollar [value] necessary to offset disutilities
which accrue to losers and their sympathizers specifically
from the realization that no compensation is offered, and (2)
the present capitalized dollar value of lost future production
(reflecting either impaired incentives or social unrest) caused
by demoralization of uncompensated losers, their sympathizers,
and other observers disturbed by the thought that they
themselves may be subjected to similar treatment on some
other occasion. 129
Settlement costs, then, are “the dollar value of the time, effort,
and resources which would be required in order to reach compensation
settlements adequate to avoid demoralization costs.” 130 He further
explains that certain rules of decision regarding regulatory
takings may be understood by examining them through his theory. 131
For instance, Michelman states that permanent physical occupations,
which are per se takings under Loretto, are uniquely demoralizing and
124 See Michelman, supra note 122, at 1214.
125 Id. at 1173.
126 See id. at 1210–11.
127 Id. at 1211.
128 See id. at 1215 (“When pursuit of efficiency gains entails capricious redistribution, either
demoralization costs or settlement costs must be incurred.”).
129 Id. at 1214.
130 Id.
131 See id. at 1224–45.