The attenuation of legal change

Stability and predictability are the central pillars of any legal system. Yet the law is not immutable: as societal preferences and market conditions change, so does the law. Considered from an ex-ante perspective, the variability of the law raises several major issues. The first concern regards the incentives that hard to predict changes in the law offer to parties. When the law becomes unstable, it offers little guidance to the parties, who are compelled to guess the best course of action. Thus, the law might lose its grip on the parties’ behavior. Additionally, if the guesses turn out to be wrong, the parties bear the cost of the erroneous prediction. Since the costs of misplaced reliance on the law can be quite large—not least because the law also acts as a coordination device—innovative lawmakers should proceed with caution. The second issue concerns the costs that uncertainty places on the affected parties. Since individuals dislike uncertainty about their future payoffs and insurance against legal change is normally not available, changes in the law produce a costly risk burden. This chapter focuses on the latter issue and considers a specific policy tool available to the lawmaker to mitigate the risk-bearing costs: the attenuation of legal change.