Risk Aversion and the Desirability of Attenuated Legal Change

26 Pages Posted: 11 Feb 2014 Last revised: 18 Feb 2014

See all articles by Steven Shavell

Steven Shavell

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

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Date Written: February 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.

Suggested Citation

Shavell, Steven, Risk Aversion and the Desirability of Attenuated Legal Change (February 2014). NBER Working Paper No. w19879. Available at SSRN: https://ssrn.com/abstract=2393592

Steven Shavell (Contact Author)

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