Government Relief for Risk Associated with Government Action

27 Pages Posted: 14 Apr 2007 Last revised: 20 Sep 2010

See all articles by Louis Kaplow

Louis Kaplow

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

Date Written: June 1989

Abstract

A significant source of risk arises from uncertainty concerning future government policy. Government action - - tax reform, deregulation, judicial decisions, budgetary shifts - - produces gains and losses for those who invested under preexisting rules. The effects of government relief - - compensation, grandfathering, phase-ins - - on ex ante incentives and risk bearing are examined in a model in which private insurance is taken into account. It is demonstrated that government relief is inefficient, even when private insurance is subject to moral hazard, because relief shields individuals from some of the effects of their actions.

Suggested Citation

Kaplow, Louis, Government Relief for Risk Associated with Government Action (June 1989). NBER Working Paper No. w3006. Available at SSRN: https://ssrn.com/abstract=979728

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