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Risk Aversion and the Desirability of Attenuated Legal Change

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  • Steven Shavell

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

  • Steven Shavell, 2014. "Risk Aversion and the Desirability of Attenuated Legal Change," NBER Working Papers 19879, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:19879
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    File URL: http://www.nber.org/papers/w19879.pdf
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    References listed on IDEAS

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    1. Tom Baker, "undated". "Insurance and the Law," University of Connecticut School of Law Working Papers uconn_ucwps-1004, University of Connecticut School of Law.
    2. Froot, Kenneth A., 2001. "The market for catastrophe risk: a clinical examination," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 529-571, May.
    3. Georgakopoulos, Nicholas L., 1997. "Predictability and legal evolution," International Review of Law and Economics, Elsevier, vol. 17(4), pages 475-489, December.
    4. Tom Baker, 2004. "Insuring Liability Risks," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 29(1), pages 128-149, January.
    5. Kaplow, Louis, 1992. " Government Relief for Risk Associated with Government Action," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(4), pages 525-541.
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    Cited by:

    1. Luigi Alberto Franzoni, 2024. "The attenuation of legal change," Working Papers wp1191, Dipartimento Scienze Economiche, Universita' di Bologna.
    2. Luigi Alberto Franzoni, 2019. "Legal Change in the Face of Risk-Averse Subjects: A Generalization of the Theory," American Law and Economics Review, American Law and Economics Association, vol. 21(2), pages 394-430.
    3. Luigi Alberto Franzoni, 2016. "Correlated Accidents," American Law and Economics Review, American Law and Economics Association, vol. 18(2), pages 358-384.
    4. Antoci, Angelo & Fiori Maccioni, Alessandro & Russu, Paolo & Sacco, Pier Luigi, 2022. "Curing is caring? Liability reforms, defensive medicine and malpractice litigation in a post-pandemic world," Socio-Economic Planning Sciences, Elsevier, vol. 80(C).

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    More about this item

    JEL classification:

    • H8 - Public Economics - - Miscellaneous Issues
    • K10 - Law and Economics - - Basic Areas of Law - - - General (Constitutional Law)
    • K20 - Law and Economics - - Regulation and Business Law - - - General

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