Governmental behavior in response to compensation requirements

The amount of compensation paid to those harmed by public activities is thought to influence mainly the distributional consequences of public programs. This paper uses a simple model of bureau behavior to examine the response of a public agency to changes in compensation requirements. Under some circumstances, changes in compensation requirements will induce agencies to change both the level and mix of public output. Tests of these predictions using data on U.S. highway construction suggest that the presence of compensation requirements can affect the real output decisions of public agencies and not simply the distributional consequences of their decisions.