When Government Programs Create Inequities: A Guide to Compensation Policies

Abstract

When the government institutes a program thought to be useful for society as a whole, such as building a highway or controlling air pollution, those that benefit from such programs are usually quite different from those that bear its costs. Sometimes the government responds by postponing or modifying. Abstract the program, sometimes by compensating those that are bearing an inequitable share of the costs. By using familiar economic concepts, the analyst can more effectively choose between the two approaches. Applying those concepts to the case of highway construction in California, we conclude that in this instance cash compensation is clearly superior to postponement as the policy of choice.