University of Chicago Law Review

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Instrumental analysis of private law damage remedies assumes rational economic actors in a market environment. A privately owned factory forced by the tort system to pay $1000 in pollution costs suffered by a downstream neighbor will continue to pollute if, and only if, the private benefits of its pollution-producing activity exceed $1000. At least within the law and economics paradigm, we can safely take for granted the rather strong assumptions upon which this analysis rests. No one doubts, for example, that a profit-maximizing firm will tend to ignore social costs that are not reflected in financial outflows, or that it will take account of costs that are reflected in financial outflows and, perhaps, change its behavior in response. What happens, however, when government is substituted for the private firm in this analysis? This substitution takes place routinely in discussions of constitutional remedies such as just compensation for takings, damages for constitutional torts, and the liability or property rule represented by the constitutional prohibition against federal "commandeering" of state governments. Each of these remedial systems seeks to deter government, to some socially optimal extent, from violating constitutional rights by forcing government agencies to internalize the costs of their constitutionally problematic conduct. But government does not internalize costs in the same way as a private firm. Government actors respond to political incentives, not financial ones--to votes, not dollars. We cannot assume that government will internalize social costs just because it is forced to make a budgetary outlay. While imposing financial outflows on government will ultimately create political costs (and benefits), the mechanism is complicated and depends on the model of government behavior used to translate between market costs and benefits and political costs and benefits. As this Article seeks to demonstrate by applying public choice models of government behavior, government cannot be expected to respond to forced financial outflows like a private firm. If the goal of making government pay compensation is to achieve optimal deterrence with respect to constitutionally problematic conduct, the results are likely to be disappointing and perhaps even perverse. Having reached this conclusion, this Article proceeds to explore potential justifications for constitutional compensation remedies other than optimal deterrence of government misconduct. Efficiency justifications based on the incentives and welfare of private actors seem misguided and, in fact, often suggest efficiency gains from withholding, rather than paying, compensation. Moving from efficiency to "fairness," the conventional philosophical justifications for compensation, offered in terms of morality or justice, are at best contestable and incomplete. This Article concludes by exploring how we might reinvent constitutional remedies in light of the insight that government responds to political, not market, incentives.