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Risk Aversion and the Desirability of Attenuated Legal Change

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  • Steven Shavell

Abstract

This article develops two points. First, insurance against the risk of legal change is largely unavailable, primarily because of the correlated nature of the losses that legal change generates. Second, given the absence of insurance against legal change, it is generally desirable for legal change to be attenuated. Specifically, in a model of uncertainty about two different types of legal change—in regulatory standards and in payments for harm caused—it is demonstrated that the optimal new regulatory standard is less than the conventionally efficient standard and that the optimal new payment for harm is less than the harm.

Suggested Citation

  • Steven Shavell, 2014. "Risk Aversion and the Desirability of Attenuated Legal Change," American Law and Economics Review, American Law and Economics Association, vol. 16(2), pages 366-402.
    • Handle: RePEc:oup:amlawe:v:16:y:2014:i:2:p:366-402.
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    File URL: http://hdl.handle.net/10.1093/aler/ahu001
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    Cited by:

    1. Luigi Alberto Franzoni, 2016. "Correlated Accidents," American Law and Economics Review, American Law and Economics Association, vol. 18(2), pages 358-384.
    2. Luigi Alberto Franzoni, 2019. "Legal Change in the Face of Risk-Averse Subjects: A Generalization of the Theory," American Law and Economics Review, American Law and Economics Association, vol. 21(2), pages 394-430.
    3. Antoci, Angelo & Fiori Maccioni, Alessandro & Russu, Paolo & Sacco, Pier Luigi, 2022. "Curing is caring? Liability reforms, defensive medicine and malpractice litigation in a post-pandemic world," Socio-Economic Planning Sciences, Elsevier, vol. 80(C).
    4. Luigi Alberto Franzoni, 2024. "The attenuation of legal change," Working Papers wp1191, Dipartimento Scienze Economiche, Universita' di Bologna.

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