Legal Transitions: Some Welfarist Remarks

In his remarkable 1986 article, An Economic Analysis of Legal Transitions, Louis Kaplow built upon earlier and pathbreaking work by Michael Graetz and overturned the then-conventional wisdom about legal transitions. Where the rule change itself is desirable, Kaplow argued, transition relief would generally be undesirable and indeed the fully retroactive application of the rule might be warranted. Kaplow’s central points were twofold: transition relief dampened desirable ex ante incentives, for actors, to anticipate desirable legal change; and absent market failures the risk of uncompensated transitions would be optimally mitigated through insurance markets, obviating the need for governmental relief. Kaplow qualified his claims in various ways, and further qualifications have emerged in the law-and-economics literature on transitions spawned by Kaplow and Graetz (most recently Daniel Shaviro’s magisterial book). Given failures in the insurance market, such as adverse-selection problems or administrative costs, government-provided transition insurance or even