Windfalls

Abstract:     
There is a widespread belief that the law should, and does, protect windfalls (unexpected gains) every bit as much as it protects property earned by effort and enterprise. This article takes issue with both arms of this assertion. Windfalls present an efficient source of government revenue: since recipients do not expect windfalls, taxing them does not distort taxpayer behavior. Moreover, risk averse citizens will prefer sharing windfalls to the lottery-like alternative of leaving them in the hands of the lucky few. While private common law litigation cannot capture and redistribute windfalls, public legislation can. And governments have adopted policies to capture windfalls, from reserving undiscovered mineral rights, to the Crude Oil Windfall Profits Tax of 1980, to the just compensation standard of eminent domain law. Opportunities to capture and redistribute windfalls should grow in tandem with modern governments' expanding ability to collect and process information.

JEL Classification: H25

Accepted Paper Series