When Should Expropriation be made? Law and Economics Analysis of Ethiopian Expropriation Law

  • Alekaw Dargie Asefa
Keywords: Economic analysis of law, holdout, sunk cost, transaction cost, public use


The application of microeconomics principles to analyze laws is the most innovative legal reasoning. Although exclusive private property rights would create incentives for efficient resource utilization, it is common that governments expropriate private property for public purpose. It is established that expropriation can be conducted when two basic requirements, “public purpose” and “compensation”, are satisfied. In Ethiopia, the requirement of compensation in relation to conducting expropriation is extensively studied. However, the question as to when expropriation should be conducted is ignored. Examination of the requirement of compensation without studying as to when expropriation should or should not be made is like putting the cart before the horse. Therefore, this Article aims at examining the law and economics of when expropriation should or should not be made with particular reference to Ethiopian expropriation law. To this end, the provisions of the relevant Ethiopian laws, literature and applicable microeconomics principles are consulted. Noting that market is alternative means of efficient resource allocation, the Article argues that the government should resort to expropriation only if there is market failure. It also attempts to point out the criteria from law and economics insights on when expropriation should be conducted and when land taking should be left to the market. It is identified that the Ethiopian expropriation law does not incorporate expropriating criteria. Expropriation would be efficiently made when it is exercised under certain law and economic criteria which would serve as constraints to the power of the government to expropriate.