This study investigates the optimal nature of lawmaking under uncertainty. I focus on a case in which a harmful activity will be subjected to some regulatory measures (a standard, exposure to liability, or a corrective tax). The benefits and costs of precaution are ex ante uncertain, and this places a risk burden on both injurers and victims. The optimal policy should, at the same time, strike a balance between benefits and costs of the measures, and attenuate the ex ante risk. Whether measures should be made stronger or softer depends on the size and the sign of the shocks affecting the parties (positive or negative) and their disposition towards risk. With corrective taxes, it also depends on the elasticity of precautions with respect to the tax rate.

Legal Change in the Face of Risk-Averse Subjects: A Generalization of the Theory

Luigi Alberto Franzoni
Writing – Original Draft Preparation
2019

Abstract

This study investigates the optimal nature of lawmaking under uncertainty. I focus on a case in which a harmful activity will be subjected to some regulatory measures (a standard, exposure to liability, or a corrective tax). The benefits and costs of precaution are ex ante uncertain, and this places a risk burden on both injurers and victims. The optimal policy should, at the same time, strike a balance between benefits and costs of the measures, and attenuate the ex ante risk. Whether measures should be made stronger or softer depends on the size and the sign of the shocks affecting the parties (positive or negative) and their disposition towards risk. With corrective taxes, it also depends on the elasticity of precautions with respect to the tax rate.
2019
Luigi Alberto Franzoni
File in questo prodotto:
File Dimensione Formato  
legal change pp.pdf

Open Access dal 26/07/2021

Tipo: Postprint
Licenza: Licenza per accesso libero gratuito
Dimensione 476.76 kB
Formato Adobe PDF
476.76 kB Adobe PDF Visualizza/Apri

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11585/703540
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 1
  • ???jsp.display-item.citation.isi??? 1
social impact