The Costs of Legal Change
Posted: 29 Jun 2001
The great bulk of the attention of scholars and policy-makers is directed toward improving the substantive approach of the law to real or perceived societal problems. Almost by definition, therefore, new legal norms - whether in the form of a statute, administrative regulation, or common law judicial decision - are proposed and adopted because of their perceived substantive benefits. They promise to remedy some recognized defect or fill a gap in the existing legal order, moderate or abolish an outdated assumption in the law, provide gains in efficiency, or (relatedly) harmonize inconsistent rules across jurisdictions.
The introduction of new rules can also come at a cost, however. For one thing, legal scholars for some time have recognized that mandatory changes in the law (in particular those with retroactive effect) impose substantive costs on parties that have made long-term investments in reliance on the old legal regime. The focus of this work, however, has been on whether, and if so in what form and to what extent, the impact of substantive legal change on disadvantaged parties ought to be compensated or otherwise mitigated.
What has been largely overlooked is the friction inherent in legal change itself. Whatever one's normative preferences, a legal system will incur costs simply in adjusting to the existence of a new legal norm. These costs will arise, for instance, from the simple need to learn about the content of new law. Even after detailed investigation, there will be an increased risk of uncertainty about its precise meaning and effect. Changes in legal mandates likewise will compel intra-party adjustments and have subtle effects on inter-party relationships forged around the old legal order. As well, innovation may increase the likelihood of pubic and private errors in interpretation.
In this light, the question in assessing proposed changes in the law becomes not only whether the new rules will bring about substantive benefits, but also whether those benefits outweigh the costs involved in the mere transition from the old, established order to the new and untested one. This paper will analyze the impact of these "legal transition costs" on the process of legal change. It will first examine how the progression from the incrementalist approach of the common law to the complexity of the modern lawmaking enterprise has increased the velocity and significance of legal transitions. It will then explore the claim that a legal system can experience substantial friction from a change in the law, whatever its content or policy goal. In specific, I undertake a detailed breakdown of the variety of legal transition costs that arise from such a change.
My goal in this effort is to demonstrate that an understanding of legal transition costs should play an increasingly significant role in the assessment of proposed changes to the law. I conclude with some initial thoughts on the positive implications of my analysis. In a final section of the paper I examine a variety of possible drafting and implementation techniques policy makers might employ to mitigate the costs of legal change.
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