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Government Relief for Risk Associated with Government Action

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  • Louis Kaplow

Abstract

A significant source of risk arises from uncertainty concerning future government policy. Government action - - tax reform, deregulation, judicial decisions, budgetary shifts - - produces gains and losses for those who invested under preexisting rules. The effects of government relief - - compensation, grandfathering, phase-ins - - on ex ante incentives and risk bearing are examined in a model in which private insurance is taken into account. It is demonstrated that government relief is inefficient, even when private insurance is subject to moral hazard, because relief shields individuals from some of the effects of their actions.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3006.

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Date of creation: Jun 1989
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Publication status: published as Scandanavian Journal of Economics, Vol. 94, No. 4, pp. 525-541 (1992).
Handle: RePEc:nbr:nberwo:3006

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  1. Kaplow, Louis, 1993. "An ex ante perspective on deregulation, viewed ex post," Resource and Energy Economics, Elsevier, vol. 15(2), pages 153-173, June.
  2. Arnott, Richard J & Stiglitz, Joseph E, 1988. " The Basic Analytics of Moral Hazard," Scandinavian Journal of Economics, Wiley Blackwell, vol. 90(3), pages 383-413.
  3. Richard J. Arnott & Joseph E. Stiglitz, 1983. "Moral Hazard and Optimal Commodity Taxation," NBER Working Papers 1154, National Bureau of Economic Research, Inc.
  4. Arrow, Kenneth J & Lind, Robert C, 1970. "Uncertainty and the Evaluation of Public Investment Decisions," American Economic Review, American Economic Association, vol. 60(3), pages 364-78, June.
  5. Sanford Grossman & Oliver Hart, . "An Analysis of the Principal-Agent Problem," Rodney L. White Center for Financial Research Working Papers 15-80, Wharton School Rodney L. White Center for Financial Research.
  6. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  7. Kaplow, Louis, 1989. "Horizontal Equity: Measures in Search of a Principle," National Tax Journal, National Tax Association, vol. 42(2), pages 139-54, June.
  8. Zodrow, George R., 1985. "Optimal tax reform in the presence of adjustment costs," Journal of Public Economics, Elsevier, vol. 27(2), pages 211-230, July.
  9. Louis Kaplow, 1985. "Horizontal Equity: Measures in Search of a Principle," NBER Working Papers 1679, National Bureau of Economic Research, Inc.
  10. Richard Arnott & Joseph Stiglitz, 1991. "Equilibrium in Competitive Insurance Markets with Moral Hazard," NBER Working Papers 3588, National Bureau of Economic Research, Inc.
  11. Shavell, Steven, 1979. "On Moral Hazard and Insurance," The Quarterly Journal of Economics, MIT Press, vol. 93(4), pages 541-62, November.
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Cited by:
  1. Metcalf, Gilbert E., 2013. "Using the Tax System To Address Competition Issues with a Carbon Tax," Discussion Papers dp-13-30, Resources For the Future.
  2. Louis Kaplow, 2010. "Taxes, Permits, and Climate Change," NBER Working Papers 16268, National Bureau of Economic Research, Inc.
  3. Steven Shavell, 2014. "Risk Aversion and the Desirability of Attenuated Legal Change," NBER Working Papers 19879, National Bureau of Economic Research, Inc.
  4. Louis Kaplow, 2003. "Transition Policy: A Conceptual Framework," NBER Working Papers 9596, National Bureau of Economic Research, Inc.
  5. Ackerman, Frank & Biewald, Bruce & White, David & Woolf, Tim & Moomaw, William, 1999. "Grandfathering and coal plant emissions: the cost of cleaning up the Clean Air Act," Energy Policy, Elsevier, vol. 27(15), pages 929-940, December.
  6. Thomas J. Miceli & Kathleen Segerson, 2011. "Regulatory Takings," Working papers 2011-16, University of Connecticut, Department of Economics.

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