Marginal Cost Pricing and Efficient Taking under Uncertainty * T. Nicolaus Tideman Department of Economics, Virginia Polytechnic Institute and State University Blacksburg, VA 24061, USA ntideman@vt.edu Florenz Plassmann Department of Economics, Binghamton University (SUNY) Binghamton, NY 13902-6000, USA fplass@binghamton.edu Abstract: We describe a mechanism for government taking under uncertainty that provides incentives for governments to make efficient taking decisions and for property owners to use their properties efficiently. We argue that efficiency in takings requires that governments not only pay the value of property when it is taken but also pay the reduction in property value that they cause when identifying properties as potential targets of takings. This is a straightforward application of the general principle of marginal cost pricing. Unlike existing proposals to improve the efficiency of takings, our mechanism requires governments to pay amounts that are sufficient to fully compensate property owners for their losses. * A more technical version of the ideas in this paper can be found in Florenz Plassmann and Nicolaus Tideman, “Fair and Efficient Compensation for Taking Property Under Uncertainty,” Journal of Public Economic Theory, 7, No. 3 (2005) pp. 471-495.