Jonathan R. Nash, Professor of Law, Emory University School of Law THE INSTITUTIONAL DYNAMICS OF TRANSITION RELIEF (forthcoming 85 N.Y.U. L. Rev. (2010)) Jonathan Masur, Assistant Professor of Law, The University of Chicago Law School Jonathan R. Nash, Professor of Law, Emory University School of Law

“Traditional” L&E View of Legal Transition Relief Don’t have legal transition relief. Government doesn’t provide relief from other (e.g., economic, technological) shifts. Why should it do so for legal transitions? Government-provided transition relief undesirably discourages societal actors from anticipating legal changes.

“Traditional” L&E View of Legal Transition Relief Puzzles for traditional opposition to legal transition relief: Why have private insurance markets for legal transitions failed to arise? The fact that private insurance is often available as a hedge against economic and technological change, but not against legal change, suggests that government-provided transition relief should if anything be more common in the setting of legal transitions.

“Traditional” L&E View of Legal Transition Relief Factors that might render legal transition relief appropriate: Concerns of efficiency. To encourage socially productive investment. Political necessity. To enhance government legitimacy. Concerns of fairness.

Private and Public Provision of Legal Transition Relief Benefits of private insurance: Provide assurance for continued investments in the face of legal uncertainty without actually requiring legal transition relief. Ameliorate the political necessity argument for legal transition relief. Might also mitigate fairness concerns. Shortcomings of private insurance: Would only lessen the concerns described above, not eliminate them. And it would do little to cure either: Inefficiencies related to transition costs, or Shortfalls in governmental legitimacy.

Private and Public Provision of Legal Transition Relief Private insurers likely to come up with “better” legal transition relief than is the government: As compared to a private insurance market, government is unlikely to have the information and processes necessary to arrive at the optimal level of transition relief. Government lacks information. Government is likely to fall prey to those who seek transition relief, and therefore to mete out too much transition relief—i.e., there will likely be too much relief and to too many parties. Government is susceptible to pressure from those who would receive transition relief actually to mete out that relief. Transition relief is a commodity that is likely to be worth enough to spur societal actors in fact to apply that pressure.

The Absence of a Market for Private Insurance: Assessing the Proffered Justifications Moral Hazard: Insured firm might fail to develop new product lines or ways of doing business as hedges against changes in the regulatory environment—the equivalent of failing to take useful precautions—or it might recklessly expand its business in such a way as to heighten damages in the event of a regulatory change. Insured firm might engage in “external” activities—namely, lobbying—that heighten the likelihood of regulation.

The Absence of a Market for Private Insurance: Assessing the Proffered Justifications Adverse Selection: Only firms that are more likely to be regulated might seek insurance.

The Absence of a Market for Private Insurance: Assessing the Proffered Justifications Uncorrelated risks: Regulation, particularly federal regulation, often exceeds even natural disasters in scope, affecting hundreds of firms in dozens of industries simultaneously, with economic impacts measured in the billions of dollars.

The Absence of a Market for Private Insurance: Assessing the Proffered Justifications Difficulties in pricing: Insufficient data: significant regulatory acts occur extremely infrequently, numbering just below one thousand per year nationally. Regulatory acts are effectively one-off, random events. Regulation in one period is not necessarily a good proxy for regulation in another period. Likelihood of regulation may well be endogenous to the rate of insurance.

Government Provision of Transition Relief The composite steps of transition relief: Is any justification sufficient to warrant a grant of transition relief? Assuming some transition relief is found to be appropriate, what form should transition relief take? Who should receive relief and who should not?

Government Provision of Transition Relief Deciding whether transition relief is warranted: Likely to raise issues of legitimacy, fairness. Likely to be broad rather than individualized. Likely to improve with some relevant expertise.

Government Provision of Transition Relief Deciding upon the Form of Transition Relief: Value-laden. Broad rather than individualized. Expertise less at a premium.

Government Provision of Transition Relief Deciding Who Gets Transition Relief: Broad question of classes of actors who may be entitled to relief: Value-laden. Broad. Question of who within each such class actually receives relief: Individualized. Technocratic. Expertise in relevant area of law less at a premium.

Government Provision of Transition Relief Government actors: Legislature: Plenary lawmaker, democratic, accountable. Able to make broad, value-laden decisions. Susceptible to lobbying and capture, may face hurdles to taking action, lacks expertise.

Government Provision of Transition Relief Government actors: Executive branch agency: Has (or will develop) expertise, fair accountability. Able to make broad, value-laden judgments. Susceptible to lobbying and capture.

Government Provision of Transition Relief Government actors: The judiciary: Independent and deliberative. Not democratic or accountable. No expertise. Unlikely to have, or to be able to gather, relevant information. Ill-suited to make broad, value-laden judgments, but well-designed to make individualized decisions.

Government Provision of Transition Relief Government actors: Independent agency: Independent and somewhat deliberative. Not democratic or accountable, lacks expertise in relevant area of law. Should be able to gather relevant information. May develop expertise in transition relief.

Government Provision of Transition Relief: Comparing the Actors Good at making broad, value-laden decisions? Good at making individualized decisions? Prone to lobbying and capture? Armed with (or able to develop) relevant expertise? Congress Very good. Not good. Somewhat. No. Executive Branch Agency Good. Fair. Very. Yes. Court Independent Agency Perhaps, with respect to allocating transition relief.

Government Provision of Transition Relief Policy Prescription: Where Congress promulgates the new legal regime Congress promulgates the new regime. Congress decides whether transition relief is appropriate. An executive branch agency decides on the form of transition relief. An independent agency allocates the relief.

Government Provision of Transition Relief Policy Prescription: Where an Executive branch agency promulgates the new legal regime Executive branch agency promulgates the new regime. Executive branch agency decides whether transition relief is appropriate. Executive branch agency decides on the form of transition relief. An independent agency allocates the relief.