Random Selection for Scaling Standards, With Applications to Climate Change

Abstract

Governments distributing funds among many claimants often fail to ensure that those similarly situated are treated similarly. This Article proposes a novel solution that would reduce both adjudication costs and adverse effects of idiosyncratic decisionmaking. Claimants to a fund would sell their claims to intermediaries, and a small number of claims would then be chosen at random for valuation in adjudication. The entire fund would be distributed to the intermediaries in proportion to their adjudicated valuations. Intermediaries will thus bid more for claims, the higher the valuations that they expect the claims to receive on average. This mechanism can enable the creation of administrative schemes that might be infeasible with a traditional administrative design, which cannot accommodate massive numbers of claims covering circumstances too heterogeneous to reduce to rules. The Article illustrates by describing several possible applications to climate change, including provision of compensation to those harmed by a carbon tax and distribution of a fund for energy efficient building upgrades. The mechanism can also be used to distribute a class action award to heterogeneous claimants. Like “statistical adjudication,” this mechanism requires adjudication of only a small number of claims, but it avoids the need for a centralized authority to extrapolate from these adjudicative results.

Keywords: law and economics, climate change, randomization

JEL Classification: H4