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On Optimal Legal Change, Past Behavior, and Grandfathering

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  • Steven Shavell

Abstract

When is it socially advantageous for legal rules to be changed in the light of altered circumstances? In answering this basic question here, a simple point is developed -- that past compliance with legal rules tends to reduce the social advantages of legal change. The reasons are twofold: adjusting to a new legal rule often involves costs; and the social benefits of change are frequently only incremental, only in addition to those of past compliance. The general implications are that legal rules should be more stable than would be appropriate were the relevance of past behavior not recognized, and that a policy of grandfathering, namely, of permitting noncompliance, should sometimes be employed. The analysis of these points has broad relevance, applying across legal fields, often explaining what we observe but also indicating possibilities for reform, such as in the regulation of air pollution. The analysis is related to the conventional reliance-based justification for the stability of the law, the literature on legal transitions, and economic writing on optimal legal standards.

Suggested Citation

  • Steven Shavell, 2007. "On Optimal Legal Change, Past Behavior, and Grandfathering," NBER Working Papers 13563, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:13563
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    References listed on IDEAS

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    1. Randy Becker & Vernon Henderson, 2000. "Effects of Air Quality Regulations on Polluting Industries," Journal of Political Economy, University of Chicago Press, vol. 108(2), pages 379-421, April.
    2. Steven Shavell, 2003. "Economic Analysis of Accident Law," NBER Working Papers 9694, National Bureau of Economic Research, Inc.
    3. Nelson, Randy A & Tietenberg, Tom & Donihue, Michael R, 1993. "Differential Environmental Regulation: Effects on Electric Utility Capital Turnover and Emissions," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 368-373, May.
    4. Kaplow, Louis & Shavell, Steven, 2002. "Economic analysis of law," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 25, pages 1661-1784 Elsevier.
    5. Stavins, Robert, 2005. "Vintage-Differentiated Environmental Regulation," Discussion Papers dp-05-59, Resources For the Future.
    6. Kenneth J. Arrow & Anthony C. Fisher, 1974. "Environmental Preservation, Uncertainty, and Irreversibility," The Quarterly Journal of Economics, Oxford University Press, vol. 88(2), pages 312-319.
    7. Lence, Sergio H., 2006. "The Economic Effects of Vintage Differentiated Regulations: The Case of New Source Review," Staff General Research Papers Archive 13132, Iowa State University, Department of Economics.
    8. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474, June.
    9. Gruenspecht, Howard K, 1982. "Differentiated Regulation: The Case of Auto Emissions Standards," American Economic Review, American Economic Association, vol. 72(2), pages 328-331, May.
    10. Gollop, Frank M & Roberts, Mark J, 1983. "Environmental Regulations and Productivity Growth: The Case of Fossil-Fueled Electric Power Generation," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 654-674, August.
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    Cited by:

    1. Suyoun Han & Morris M. Kleiner, 2016. "Analyzing the Influence of Occupational Licensing Duration and Grandfathering on Labor Market Outcomes," NBER Working Papers 22810, National Bureau of Economic Research, Inc.
    2. Kleiner, Morris M. & Han, Suyoun, 2017. "Analyzing the Influence of Occupational Licensing Duration and Grandfathering on Labor Market Outcomes," Staff Report 556, Federal Reserve Bank of Minneapolis.

    More about this item

    JEL classification:

    • K1 - Law and Economics - - Basic Areas of Law
    • K2 - Law and Economics - - Regulation and Business Law
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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