Just Compensation

Posted in Finance, Accounting and Economics Terms, Total Reads: 387
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Definition: Just Compensation

Just Compensation is usually fair payment given to a person in return for the service or good obtained. In the context of US legal system, “Just Compensation” refers to the fair price that an individual must get from the Government when his/her property is taken over by the Government for public use.

 

Description:

The Bill of Rights of US law protects citizens against unfair treatment by the Government in the course of a legal process. The Fifth Amendment (Amendment V) to the United States Constitution falls under this Bill and it deals with the concept of “Just Compensation”.

 

As per this amendment, whenever Government takes over the private property of an individual for public use, construction of highways, dams or any other developmental work, the person will have to be compensated for the same in a fair manner. As the property is being taken up in an involuntary basis, the Government will have to at least pay the fair market value of the property (equivalent to what the seller would have got on a voluntary basis).

 

Point of Contention:

There has been contention on what exactly the “fair market value” should capture. A theoretic fair value only takes into account value of the tangible property like land, but it does not account for the individual’s cost of rehabilitation, travel, and intangible factors like emotional stress. Hence, there have been arguments supporting payments higher than the theoretical market value in cases of land acquisition for public projects.

 

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