I think that the government should be liable for all reasonables damages caused by police investigations. Not just here, but in general - it's obvious the police use investigation as a form of blackmail at occasion, and that's just wrong. As part of a conviction, some of those damages might be voided to the degree the damage was necessary and proportional to the crime.
Also, from the point of view of efficiency in society, this is a particularly nasty cost since its borne not by those that cause it (the officers), nor by those hiring them (the government), nor is it ever accounted for as a loss. I think this encourages malpractice. Certainly if you observe how the police go about enforcing the law once they've decided somebody is guilty in their own eyes there doesn't seem to be any kind of restraint whatsoever. To the extent they can, they're single-party judge, jury and enforcement in one, exactly the kind of thing the idea of a justice system is supposed to prevent.
Also, from the point of view of efficiency in society, this is a particularly nasty cost since its borne not by those that cause it (the officers), nor by those hiring them (the government), nor is it ever accounted for as a loss. I think this encourages malpractice. Certainly if you observe how the police go about enforcing the law once they've decided somebody is guilty in their own eyes there doesn't seem to be any kind of restraint whatsoever. To the extent they can, they're single-party judge, jury and enforcement in one, exactly the kind of thing the idea of a justice system is supposed to prevent.