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Risk Aversion and the Desirability of Attenuated Legal Change

American Law and Economics Review, Forthcoming

25 Pages Posted: 16 Jan 2014 Last revised: 17 Jan 2014

Steven Shavell

Harvard Law School; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: January 1, 2014

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.

JEL Classification: H8, K10, K20

Suggested Citation

Shavell, Steven, Risk Aversion and the Desirability of Attenuated Legal Change (January 1, 2014). American Law and Economics Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2379453 or http://dx.doi.org/10.2139/ssrn.2379453

Steven Shavell (Contact Author)

National Bureau of Economic Research (NBER)

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