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Government Relief for Risk Associated with Government Action

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  • Louis Kaplow

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

  • Louis Kaplow, 1989. "Government Relief for Risk Associated with Government Action," NBER Working Papers 3006, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:3006
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    References listed on IDEAS

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