Risk Aversion and the Desirability of Attenuated Legal Change
AbstractThis 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.
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Date of creation: Feb 2014
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Find related papers by JEL classification:
- H8 - Public Economics - - Miscellaneous Issues
- K10 - Law and Economics - - Basic Areas of Law - - - General (Constitutional Law)
- K20 - Law and Economics - - Regulation and Business Law - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-02-15 (All new papers)
- NEP-IAS-2014-02-15 (Insurance Economics)
- NEP-LAW-2014-02-15 (Law & Economics)
- NEP-MIC-2014-02-15 (Microeconomics)
- NEP-SOG-2014-02-15 (Sociology of Economics)
- NEP-UPT-2014-02-15 (Utility Models & Prospect Theory)
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