Allocation and uncertainty: Strategic responses to environmental grandfathering

Ecology Law Quarterly

Volumn 36, Issue 4, 2009, Pages 809-850

  Nash, Jonathan Remy ^a  

^a EMORY UNIVERSITY SCHOOL OF LAW   (United States)

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EID: 76949098994     PISSN: 00461121     EISSN: None     Source Type: Journal    
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References (314)

1. See infra text accompanying notes 51-52.
2. See infra text accompanying notes 32-47.
3. See infra text accompanying notes 39-42.
4. See Todd J. Zywicki, Environmental Externalities and Political Externalities: The Political Economy of Environmental Regulation and Reform, 73 TUL. L. REV. 845, 895 (1999) ("[R]educ[ing] the uncertainty of the stream of rents that will be forthcoming under the legislative contract... increases] the price that the politician can charge for her services.").
5. See infra text accompanying notes 38-39.
6. Jonathan Remy Nash, Framing Effects and Regulatory Choice, 82 NOTRE DAME L. R##ev. 313, 323-24 (2006).
7. For discussion of allocation issues under the Kyoto Protocol, see Jonathan Remy Nash, Too Much Market? Conflict between Tradable Pollution Allowances and the "Polluter Pays" Principle, 24 HARV. ENVTL. L. REV. 465, 508 (2000). For discussion of allocation issues under the European Union greenhouse gas trading regime
8. see Robert L. Stavins, A Meaningful U. S. Cap-and-Trade System to Address Climate Change, 32 HARV. ENVTL. L. REV. 293, 367-69 (2008).
9. Cf. Michigan v. EPA, 213 F.3d 663, 676 (D. C. Cir. 2000) ("If transaction costs were zero, the only effect of the initial assignment of cutbacks would be distributional: firms would make only the cheaper cutbacks, but firms with high emission-reduction costs would buy allowances from those with low costs and thereby transfer wealth to them.").
10. Cf. Nash, supra note 6, at 337-38 ("Viewed from the perspective of property rights, command-and-control regimes appear as pollution permit regimes under which the permits are not tradable separate from the underlying property."). Consider also the case of amnesty for illegal immigrants, which has, as I discuss below, similarities to retrospective allocation
11. see infra text accompanying notes 181-182, but where conferred rights are not tradable.
12. Cf. Michigan, 213 F.3d at 676 & n. 3 (noting in general that "transaction costs notoriously are not zero, " and that, in the context of the proposed nitrogen oxides trading system there at issue, "[a] glance at EPA's regulations for allowance trading will convince any doubter that transaction costs can safely be expected to be substantial") ;
13. Jonathan Remy Nash, Taxes and the Success of Non-Tax Market-Based Environmental Regulatory Regimes, in5 CRITICAL ISSUES IN ENVIRONMENTAL TAXATION 735, 749 (Nathalie J. Chalifour et al. eds., 2008) (arguing that federal income tax treatment may impede trading of tradable pollution permits).
14. One who is allocated a permit and need not buy one will have more wealth than one who is not allocated a permit and needs to buy one; similarly, one who is allocated a permit and can sell it enjoys more wealth than one who is not allocated a permit.
15. See, e.g., John J. Donohue III, Diverting the Coasean River: Incentive Schemes to Reduce Unemployment Spells, 99 Yale L. J. 549, 552 (1989) ("[T]he allocation of the entitlement may have wealth effects that determine the parties' ability to pay and hence determine the efficient result.").
16. See also id. at 550 n. 4 (discussing conditions necessary for allocation of entitlement not to affect the distribution of wealth).
17. See, e.g., Lisa Heinzerling, Selling Pollution, Forcing Democracy, 14 STAN. ENVTL. L. J. 300, 328-32 (1995) (detailing the substantial lobbying that accompanied the drafting of the allocation provisions of the national sulfur dioxide trading system under the Clean Air Act Amendments of 1990).
18. See, e.g., Alliance Against IFQs v. Brown, 84 F.3d 343 (9th Cir. 1996) (challenging allocation of fisheries quotas).
19. See, e.g., John Tierney, A Tale of Two Fisheries, N. Y. TIMES, Aug. 27, 2000, at 38 (describing a deckhand on a New England fishing boat for 11 years who did not like the notion that, under a tradable fishing quota system, newcomers might have to buy their way into the fishery: He "was hoping soon to get his own boat. 'I don't want the door shut on me,' he said. 'I've put a lot of time into this business. That's not fair.'").
20. For example, Phase I of the national sulfur dioxide trading system was in effect from 1995 to 1999, during which period a single allocation scheme was in effect and controlled annual sulfur dioxide emissions allowance allocations.
21. See Clean Air Act § 404 (a), (e), 42 U. S. C. § 7651c (a), (e) (2006). Under Phase II, which began in 2000 and will remain in effect through 2009, a different-but still single-scheme controls annual allocations.
22. See Clean Air Act §§402 (28), 405, 42 U. S. C. §§7651a (28), 7651d (2006).
23. See Jonathan Remy Nash & Richard L. Revesz, Grandfathering and Environmental Regulation: The Law and Economics of New Source Review, 101 Nw. U. L. REV. 1677, 1729 (2007).
24. See infra text accompanying notes 70-72.
25. See infra note 81.
26. See infraPart III.
27. See Dean Lueck, The Rule of First Possession and the Design of the Law, 38 J. L. & ECON. 393, 393 (1995) ("First possession rules are the dominant method of initially establishing property rights.").
28. Perhaps most commonly associated with the celebrated fox-hunt case, Pierson v. Post, 3 Cai. R. 175 (N. Y. 1805), first possession can be conceptualized to invoke three elements: First, a property interest is awarded. Second, that interest is awarded to the party who wins the race to capture-that is, to the party who captures the property first. Third, the definition of capture is defined on a case-by-case basis, by reference to the particular circumstances and policy considerations raised by the property interest at issue.
29. The rule of Pierson v. Post has been adapted for use in numerous other settings. For example, versions of the race have been used to award property interests in other sorts of wild animals
30. see, e.g., Ghen v. Rich, 8 F. 159 (D. Mass. 1881), radio frequencies
31. see Carol M. Rose, Possession as the Origin of Property, 52 U. CHI. L. REV. 73, 75 (1985), and baseballs
32. see, e.g., Popov v. Hayashi, No. 400545, 2002 WL 31833731 (Cal. Super. Ct. Dec. 18, 2002). More generally, it has been applied in the context of the allocation of a publicly held natural resources, portions of which are reduced to private ownership as they are captured and removed from the commons. The race to capture may be conceived of narrowly or broadly in this regard.
33. See, e.g., Jason Scott Johnston, The Rule of Capture and the Economic Dynamics of Natural Resource Use and Survival under Open Access Management, 35 ENVTL. L. 855, 856 (2005) (distinguishing between races for commonly-owned and publicly-owned open-access property, and between rules that award only what one in fact captures as opposed to rules that grant at first possession the right to harvest the entire resource) ;
34. Lueck, supra note 20, at 396 (distinguishing between races to capture that award the victor the entire stock and races to capture that award the victor simply some of the flow from the stock).
35. On the deleterious effects of the race to capture, see infra text accompanying notes 51-52.
36. Thus, for example, zoning ordinances generally grandfather non-conforming uses. See, e.g., Nash & Revesz, supra note 16, at 1731.
37. See supra note 6 and accompanying text.
38. For example, each allowance under the national sulfur dioxide emissions trading program authorizes its holder "to emit, during or after a specified calendar year, one ton of sulfur dioxide." Clean Air Act § 402 (3), 42 U. S. C. § 7651a (3) (2006). It is theoretically possible instead to issue allowances in units of environmental degradation (which may differ from emissions).
39. See Jonathan Remy Nash & Richard L. Revesz, Markets and Geography: Designing Marketable Permit Schemes to Control Local and Regional Pollutants, 28 ECOLOGY L. Q. 569, 618-21 (2001).
40. It is possible to construct trading regimes under which permits are tradable only within distinct regions
41. see Nash & Revesz, supra note 24, at 615-18;
42. id. at 589-94 (discussing rejected proposals to have two separate regions for sulfur dioxide allowance trading), or to impose constraints on trades that traverse regional boundaries
43. see id. at 611-12 (discussing a two-zone air pollutant trading program in the Los Angeles metropolitan area, under which trades are allowed to proceed from the coastal zone to the inland zone, but not vice versa) ;
44. id. at 618 (discussing the possibility of introducing exchange ratios for trades that traverse zonal boundaries).
45. See Nash, supra note 6, at 335-36. Note that many regulatory regimes, including in particular the Clean Air Act's sulfur dioxide allowance trading program, disclaim the notion that the programs' permits are property
46. see, e.g., Clean Air Act § 403 (f), 42 U. S. C. § 7651b (f) (2004) (characterizing an allowance under the program as "a limited authorization to emit sulfur dioxide" that "does not constitute a property right, " and noting that "[n]othing in this subchapter or in any other provision of law shall be construed to limit the authority of the United States to terminate or limit such authorization"), although one might question whether such a provision alone is sufficient to preclude a takings claim.
47. See Jonathan Remy Nash, Tradable Environmental-Degradation Permits and the Takings Clause (Nov. 3, 2009) (unpublished manuscript, on file with Ecology Law Quarterly).
48. See, e.g., Byron Swift, U. S. Emissions Trading: Myths, Realities, and Opportunities, 20 NAT. RESOURCES & ENVT. 3, 4 (2005).
49. One can conceive of the second situation in some circumstances as similar to the first. Consider, for example, the capture of fish as a natural resource. One can consider the output fish-quaproduct as distinct from the input fish-qua-resource. Indeed, this understanding is a reasonable one to the extent that at least some of the fish captured are not used as output (because, for example, they are too small or sick or not of a desired stock) yet they nonetheless are not returned (because they suffocate while in fishing nets). The output is societally productive while reduction in the input-which is the natural resource-is a byproduct of the societally beneficial activity.
50. See Nash, supra note 6, at 357 ("Market-based regulations tend... to frame their function so as to partition the act of pollution from the underlying activity out of which the pollution emission originates.") ;
51. Lee Anne Fennell, Properly and Half-Torts, 116 YALE L. J. 1400, 1407-16 (2007) (distinguishing between harm, and useful activities that may result in harm as a byproduct).
52. This makes sense from a property theory perspective, insofar as widget production has Lockean value, while pollution production qua pollution production does not.
53. See infra note 44 (explaining Professor Leigh Raymond's application of this notion to the setting of allocation of air pollutant emission allowances).
54. Note that the concept of retrospective allocation need not be limited to situations where positive grandfathering rights are allocated in direct proportion to past polluting behavior. The concept can be extended to situations where rights are allocated in inverse proportion to past behavior. For example, the government might distribute fewer grandfathering rights to those who historically have polluted more.
55. See, e.g., Nash, supra note 7, at 508 (discussing the possibility of such an inverse allocation). Indeed, the concept can be extended to situations where negative obligations (or the choice between positive rights and negative obligations) are allocated based on past behavior. For example, the government might impose liability on polluters in proportion to their past polluting behavior, with those who have polluted more bearing a larger share of the liability. I discuss one such possible application of retrospective allocation below.
56. See infra notes 168-174 and accompanying text. The concept also can be applied where what is being distributed is not grandfathering rights, but rather partial compensation, or some money to compensate recipients for the fact that they will no longer be able to engage (at least at no cost) in the particular behavior being regulated.
57. See Louis Kaplow, An Economic Analysis of Legal Transitions, 99 HARV. L. REV. 509, 583-84 (1986).
58. The fact that retrospective allocation is emerging in these areas is not surprising.
59. See infra text accompanying notes 128-133.
60. See generally Katrina Miriam Wyman, From Fur to Fish: Reconsidering the Evolution of Private Property, 80 N. Y. U. L. REV. 117, 155-56, 164-76 (2005).
61. Alison Reiser, Property Rights and Ecosystem Management in U. S. Fisheries: Contracting for the Commons, 24 ECOLOGY L. Q. 813, 820 (1997).
62. See, e.g., Dallas DeLuca, Note, One for Me and One for You: An Analysis of the Initial Allocation of Fishing Quotas, 13 N. Y. U. ENVTL. L. J. 723, 734 (2005).
63. See infra notes 131-132 and accompanying text; 16 U. S. C. § 1801 (a) (2) (2006) ("Certain stocks of fish have declined to the point where their survival is threatened, and other stocks of fish have been so substantially reduced in number that they could become similarly threatened as a consequence of (A) increased fishing pressure, (B) the inadequacy of fishery resource conservation and management practices and controls, or (C) direct and indirect habitat losses which have resulted in a diminished capacity to support existing fishing levels.") ;
64. LEIGH RAYMOND, PRIVATE RIGHTS IN PUBLIC RESOURCES: EQUITY AND PROPERTY ALLOCATION IN MARKET-BASED ENVIRONMENTAL POLICY 15 & n. 2 (2003).
65. 16 U. S. C. §§ 1801-1884 (2006).
66. The Magnuson Act asserts the federal government's right to fishery management within the exclusive economic zone, and to a limited extent outside the exclusive economic zone as well. See id. § 1811 (a) - (b). The Magnuson Act defines "exclusive economic zone" as "the zone established by Proclamation Numbered 5030, dated March 10, 1983, " with the proviso that, "[f]or purposes of applying this chapter, the inner boundary of that zone is a line coterminous with the seaward boundary of each of the coastal States." Id. § 1802 (11). After asserting this broad federal fishery management authority, the Magnuson Act proceeds then largely to devolve that authority on eight regional Fishery Management Councils.
67. See id. § 1852. The councils and the Secretary of Commerce may develop fisheries management plans.
68. See id. § 1853 (setting forth the required and discretionary contents of fishery management plans) ;
69. id. § 1851 (setting forth national standards for fishery conservation and management, with which "[a]ny fishery management plan..., and any regulation promulgated to implement any such plan shall... [be] consistent...") ;
70. id. § 1854 (a) (1) (A) (providing for review by the Secretary of Commerce of all fishery management plans promulgated by regional fishery management councils). In particular, the management councils and the Secretary are granted the discretion to include in a fishery management plan "a limited access system for the fishery." Id. § 1853 (b) (6). At one point the Magnuson Act imposed a moratorium on new 1FQ systems, but that moratorium expired in 2002.
71. See Wyman, supra note 33, at 185-89.
72. Tradable fishing quotas schemes in other nations have also used historic data as the basis for allocating fishing rights. For explication of the allocation methods used in various fisheries
73. see COMMITTEE TO REVIEW INDIVIDUAL FISHING QUOTAS, NATIONAL RESOURCE COUNCIL, SHARING THE FISH: TOWARD a NATIONAL POLICY ON INDIVIDUAL FISHING QUOTAS (1999) ;
74. DeLuca, supra note 35, at 742-56.
75. 50 C. F. R. § 676.20 (b).
76. Id. § 676.20 (f) (1).
77. See 58 Fed. Reg. 59375-03 (Nov. 9, 1993).
78. See 42 U. S. C. § 7651d (b) - (f), (g) (1), (2), (h) - (j) (2006) ; 40 C. F. R. §§ 73.10 (b) & tbl. 2, 73.19, 73.20;
79. see also Nash & Revesz, supra note 24, at 585.
80. The sulfur dioxide emissions allowance allocations were determined based upon two factors-fuel consumption and emissions rate-with historical data used only for the former. Leigh Raymond has argued that this makes sense, insofar as only the first factor relates to the beneficial activity in which societal actors were engaged.
81. See RAYMOND, supra note 36, at 78-79 (noting that the Bush Administration's proposal for the allocation of sulfur dioxide emissions allowances blended two factors-historical fuel consumption and constant emissions rate-and that the use of historical data for the first factor, as opposed to the second, makes sense insofar as "[b]y itself, the consumption of fuel to generate electricity is close to th[e] Lockean ideal: it represents work by utilities benefiting the larger community by providing a vital commodity"; in contrast, "[t]he emissions rate... is obviously much less Lockean"). Thus, it makes sense to see societal actors as having engaged in a societally valuable race to capture the extent of their fuel consumption, but not their emissions rates.
82. Eileen Claussen, Carping at Kyoto, 34 GEO. WASH. INT'L L. REV. 247, 248 (2002) (book review of DIAVID G. VICTOR, THE COLLAPSE OF THE KYOTO PROTOCOL AND THE STRUGGLE TO SLOW GLOBAL WARMING (2001)).
83. Erik Bluemal, Unraveling the Global Warming Regime Complex: Competitive Entropy in the Regulation of the Global Public Good, 155 U. PA. L. REV. 1981, 1993 (2007).
84. See Kyoto Protocol to the U. N. Framework Convention on Climate Change, Dec. 10, 1997, U. N. DOC. FCCC/CP/1997/7/Add.l, 2303 U. N. T. S. 148, at Annex, art. 3 (1) (entered into force Feb. 16, 2005) ("The Parties included in Annex I shall, individually or jointly, ensure that their aggregate anthropogenic carbon dioxide equivalent emissions of the greenhouse gases listed in Annex A do not exceed their assigned amounts, calculated pursuant to their quantified emission limitation and reduction commitments inscribed in Annex B and in accordance with the provisions of this Article, with a view to reducing their overall emissions of such gases by at least 5 per cent below 1990 levels in the commitment period 2008 to 2012.") ;
85. see also Nash, supra note 7, at 508 & n. 175.
86. I consider situations in which one is "uncertain" to include those settings where one faces a more calculable "risk" as to exactly which criteria will control.
87. See Henry E. Smith, Property and Property Rules, 79 N. Y. U. L. REV. 1719, 1724 (2004) ("[R]isk is variability in outcomes that can be captured by a probability distribution, but uncertainty cannot be quantified in this way."). As I discuss below, the more that risk prevails over uncertainty, the more likely it is that societal actors-or at least those with ample resources-may be able to hedge against that risk. Thus, for example, if a societal actor is certain that some, but not sure as to exactly which, of the next ten years will prove to be of relevance for allocation purposes, the actor can minimize risk by engaging in the requisite behavior during all ten years.
88. I concede that the interplay of uncertainty and timing may create some hazy boundaries. For example, there is theoretically always uncertainty as to what form legislation will take once enacted, and indeed whether it will be enacted at all. Still, at times, those uncertainties may be at particularly low ebb. For example, Professor Kyle Logue has suggested that new tax laws should be applied prospectively, not from the date of enactment, but from the date that they are originally proposed in Congress.
89. See Kyle Logue, Tax Transitions, Opportunistic Retroactivity, and the Benefits of Government Precommitment, 94 MICH. L. REV. 1129, 1180 (1996).
90. See infra tbl.1.
91. See Lueck, supra note 20, at 396.
92. To some degree, the fact that race to capture regimes may award windfalls-that is, they may allocate property to undeserving actors over deserving ones
93. see infra Part II. B.2-may offset some the problems of overinvestment: the factual uncertainty inherent in any race to capture should serve to some degree to temper racers' investments in trying to win the race. For example, the fact that Post knows that Pierson may be awarded the fox despite his substantial efforts (or that the fox he catches may be far less valuable than the foxes caught by others) should reduce the amount of investment that Post is willing to put into winning the race.
94. See Pierson v. Post, 3 Cai. R. 175 (N. Y. 1805).
95. At the same time, however, the factual uncertainty may lead to greater investment, especially as actors continue to engage in the race multiple times and the resource becomes more valuable and scarcer. Provided that greater investments make (or are perceived to make) winning the race sufficiently more likely, then actors will invest more in trying to win the race: if Post knows that his investments will yield foxes (and more valuable foxes) enough of the time such that the cost of his investments will be covered, then the investments will be economically sound.
96. See B. Timothy Heinmiller, The Politics of "Cap and Trade" Policies, 47 NAT. RESOURCES J. 445, 456-61 (2007).
97. See Giuseppe Dari-Mattiacci et al., Crowding-Out in Productive and Redistribute Rent-Seeking, 133 PUB. CHOICE 199, 211-15 (2007) (describing how societal actors may engage in unproductive "redistributive rent-seeking" in order to obtain greater allocations of goods with no broad societal benefits).
98. On the distinction between ex ante and ex post efficiency, see Eric A. Posner & Cass R. Sunstein, Should Greenhouse Gas Permits be Allocated on a Per Capita Basis?, 97 CAL. L. REV. 51, 76 (2009) ;
99. Lucian Arye Bebchuk, Property Rights and Liability Rules: The Ex Ante View of the Cathedral, 100 MICH. L. REV. 601, 612 (2001) ;
100. see also Clarisa Long, Proprietary Rights and Why Initial Allocations Matter, 49 EMORY L. J. 823 (2000).
101. See Bebchuk, supra note 54, at 612-13.
102. See id. at 613.
103. See infra notes 127-128 and accompanying text.
104. Cf. RAYMOND, supra note 36, at 53 (describing how "intrinsic" property allocation methods, which are based on historical performance, arise out of Lockean norms and, as such, "recognize[] prior uses that are tangible and beneficial").
105. In this sense, the problem with the traditional race to capture is similar to the Heisenberg uncertainty principle in quantum physics. The uncertainty principle dictates that an attempt to measure one feature of a subatomic particle necessarily has an effect on the particle, such that some other feature of the particle will be altered.
106. See WIERNER HEISENBERG, PHYSICS AND PHILOSOPHY: THE REVOLUTION IN MODERN SCIENCE 47-48 (1958).
107. Cf. Laurence H. Tribe, The Curvature of Constitutional Space: What Lawyers Can Learn from Modern Physics, 103 HARV. L. REV. 1, 20-24 (1989) (discussing applications of the uncertainty principle to law) ;
108. but cf. Jonathan Remy Nash, Examining the Power of Federal Courts to Certify Questions of State Law, 88 CORNELL L. REV. 1672, 1675 n. 9 (2003) (noting the limits of applying physics, which develops theories based upon observations of the universe, to legal structures, which are developed by society).
109. There are other settings in which anticipation of a government action may generate suboptimally high behavioral adjustments. Professor Kyle Logue describes the phenomenon of '"underthe-wire' investment activity, " where taxpayers respond to the "enormous incentive (once the transition is being considered by Congress but before it has been enacted) for taxpayers to increase their level of investment in [an] asset that is going to lose... preferential tax treatment." Logue, supra note 49, at 1179. Professor David Dana has noted that "investors have available to them an alternative to reducing their level of investment in response to the risk of future natural preservation regulation: they can accelerate their investment and, in essence, beat the regulatory clock."
110. David A. Dana, Natural Preservation and the Race to Develop, 143 U. PA. L. REV. 655, 681 (1995) ;
111. see also Dean Lueck & Jeffrey A. Michael, Preemptive Habitat Destruction under the Endangered Species Act, 46 J. L. & ECON. 27 (2003) (application of this principle to habitat modification and the Endangered Species Act). Robert Cooter has discussed how, "when... government action is likely to be judged a taking [of property] with full compensation, [a property owner] will give insufficient weight to [the] loss in profits in the event of government action, " and, as a result, "will invest excessively." Robert F. Cooter, Unity in Tort, Contract, and Property: The Model of Precaution, 73 CAL. L. REV. 1, 21 (1985). And Professor Steven Shavell has noted the possibility that "a firm that... would only have entered [a] harmful activity in period 2 might... choose to enter in period 1 in order to be able to obtain grandfathered status and operate later in period 2 at lower cost."
112. Steven Shavell, On Optimal Legal Change, Past Behavior, and Grandfathering, 37 J. LEG. STUD. 37, 57 (2008).
113. Cf Ehud Guttel, The (Hidden) Risk of Opportunistic Precautions, 93 VA. L. REV. 1389, 1395-1406 (2007) (arguing that legal certainty as to the necessity for a tortfeasor to compensate a victim provided that the victim make some precautionary investment creates an incentive for inefficiently high investments in precaution).
114. The effect of legal uncertainty in this context can be contrasted with the notion, advanced by the precautionary principle, that steps should be taken to avoid catastrophic effects, even if the probability that they may occur is uncertain.
115. See generally Jonathan Remy Nash, Standing and the Precautionary Principle, 108 COLUM. L. REV. 494, 498-504 (2008).
116. To be sure, there presumably will be behaviors undertaken during the "measurement years" that are undesirable. Indeed, those behaviors-including suboptimally high investments and resource depletion-are the reasons for the new limitations on resource depletion of which the grandfathering system is a part. The point, however, is that while the new legal system is designed in the long term to address those problems, retrospective allocation is designed to limit additional undesirable behavior that otherwise might arise during the transition.
117. Alliance Against IFQs v. Brown, 84 F.3d 343, 346 (9th Cir. 1996) (quoting a 1992 environmental impact statement).
118. Id. at 346. The legal ground for this aspect of the challenge was that consideration of prior years violated the statutory directive that the council and the Secretary of Commerce "take into account... present participation in the fishery." 16 U. S. C. § 1853 (b) (6) (A) (2006). The court sustained the fishery's allocation method in the face of this challenge.
119. See Alliance, 84 F.3d at 346-48.
120. Alliance, 84 F.3d at 348.
121. Cf. Dana, supra note 60, at 681 (noting that owners of undeveloped land know or should know about the risk of future land use controls).
122. Cf. Kyle D. Logue, Legal Transitions, Rational Expectations, and Legal Process, 13 J. CONTEMP. LEGAL ISSUES 211, 213 (2003) (arguing that it is reasonable to expect sophisticated actors to anticipate legal changes).
123. Dana, supra note 60, at 681.
124. Id. at 683. Dana offers two other reasons to expect landowners to anticipate and to have the opportunity to engage in accelerated development before government regulation impedes that option: Third, the losses imposed by uncompensated natural preservation regulation sometimes are very large in absolute terms and in terms of the overall value of the affected investment.... Fourth, and perhaps most important, the strong norm of non retroactivity in the regime of natural preservation regulation means there is a relatively easy means of protecting oneself against the risk of a future uncompensated regulation restricting development-develop immediately and thoroughly. Id. at 684.
125. See Nash & Revesz, supra note 16, at 1726 (explaining that, under the dominant law and economics approach to legal transitions, transition rules that lessen the effect of legal regime shifts are undesirable insofar as they inefficiently discourage societal actors from anticipating legal change).
126. See, e.g., Kaplow, supra note 31, at 584-87;
127. cf. Ann Woolhandler, Public Rights, Private Rights, and Statutory Retroactivity, 94 GEO. L. J. 1015, 1055 (2006) (noting the law and economics literature that views "prospective and retroactive regulatory changes as essentially equal" in that "[b]oth may upset expectations, creating economic winners and losers, " and that concludes that "[p]arties should be encouraged to anticipate legal change, whether nominally retroactive or prospective").
128. See Logue, supra note 67, at 213 (arguing that it is reasonable to expect sophisticated actors to anticipate legal changes).
129. See supra text accompanying notes 28-30.
130. A simple analogy is to the notion that teachers seeking to examine students over a range of material may select certain topics on which to test but, in order to ensure that students cannot cut corners on what they study, will not tell students exactly what topics will appear on the examination.
131. Another analogy arises in the context of attempts by accrediting agencies to measure performance without thereby affecting how participants perform. For example, in Great Britain, a 2005 announcement of how productivity of university faculties would be measured in 2008 explains: The [Research Assessment Exercise] exists to measure the quality of research in [U. K. higher education institutions]. It should carry out that function without distorting the activity that it measures, and it should not encourage or discourage any particular type of activity or behaviour other than providing a general stimulus to the improvement of research quality overall. HIGHER EIDUCATION FUNDING COUNCILS FOR ENGLAND ET AL., RESEARCH aSSESSMENT EXERCISE 2008: GUIDANCE TO PANELS 5-6 (2005), available at http://www.rae.ac.uk/ pubs/2005/01/rae0105.pdf.
132. The uncertainty with which societal actors initially might view retrospective allocations thus might evolve toward risk. This might allow wealthier actors to hedge.
133. See supra note 48.
134. The question of exactly what criteria might appropriately be varied is likely to be a difficult one. In my view, for example, it would not make sense to vary the classes of societal actors-such as owners, lessees, and workers in the fishing quota context-who will be entitled to allocations.
135. Another difficult question is how broadly to vary the criteria. Choosing three, as opposed to seven, years out of a ten-year period will greatly increase the costs actors face to hedge, and thus decrease the incentive to do so. On the other hand, choosing seven out of ten years will afford actors more leeway and seems more inclusive and fairer.
136. Cf. New York v. EPA, 413 F.3d 3, 36-37 (D. C. Cir. 2005) (upholding EPA's decision to revise new source review Clean Air Act regulations to allow firms, instead of relying upon the two years immediately preceding a physical change to a plant to determine a baseline pollution level, to choose any two of the preceding ten years, on the ground that "a ten-year period was necessary 'to ensure that the normal business cycle would be captured generally for any industry"') (quoting 67 Fed. Reg. 80, 186, 80, 216 (Dec. 31, 2002)), cert, denied, 550 U. S. 928 (2007).
137. See supra text accompanying notes 70-72.
138. See Nash & Revesz, supra note 16, at 1729.
139. See Nash, supra note 7, at 506 (describing barrier against exit) ;
140. see also Nash & Revesz, supra note 16, at 1708-12 (discussing the old plant effect).
141. See Nash & Revesz, supra note 16, at 1729.
142. Other commentators offer different justifications for legal transition relief. Dean Saul Levmore argues that transition relief may be acceptable (if not normatively desirable) where those who would receive transition relief would successfully oppose the normatively preferable new legal regime in the absence of transition relief.
143. See Saul Levmore, Changes, Anticipations, and Reparations, 99 COLUM. L. REV. 1657, 1665-66 (1999) ;
144. infra notes 152-154 and accompanying text. Dean Richard Revesz and I have argued that concerns of fairness may justify limited legal transition relief.
145. See infra note 108 and accompanying text. Last, the government response to the current economic crisis suggests that transition relief may be appropriate in order to avoid the possibility of widespread externalities.
146. See infra notes 110-113 and accompanying text.
147. See Shavell, supra note 60, at 38-39.
148. See Nash & Revesz, supra note 16, at 1727-28;
149. accord Shavell, supra note 60, at 69.
150. See Lawrence Blume & Daniel L. Rubinfeld, Compensation for Takings: An Economic Analysis, 72 CAL. L. REV. 569, 582-99 (1984) (explaining that the absence of private insurance against government action necessitates compensation for government takings in order to minimize suboptimally low investments) ;
151. cf. Palazzolo v. Rhode Island, 533 U. S. 606 (2001) (holding that the mere fact that someone takes title to property after the government has imposed a regulation on land use does not bar a takings claim).
152. While Blume and Rubinfeld argue that private insurance against government regulation is generally not an option, there may be settings in which the private sector can provide the assurance necessary to encourage societal actors to take steps even before a government program is initiated. Consider the efforts being undertaken by private entities to create guidelines to certify voluntary greenhouse gas reduction credits even before the advent of-or in the absence of-a formal trading system.
153. See Amena H. Saiyid, Consortium Issues Carbon Standard to Certify Credits Earned in Voluntary Carbon Markets, DAILY ENVT. REP. (BNA), Nov. 20, 2007, at A-11.
154. See Jonathan Masur, Judicial Deference and the Credibility of Agency Commitments, 60 VAND. L. REV. 1021, 1026-31 (2007).
155. See id. at 1031-60 (discussing the deleterious effects of decreased legal stability).
156. But cf. Eric A. Posner, Courts Should Not Enforce Government Contracts (U. Chicago Law & Economics, Olin Working Paper No. 132 2001) (unpublished manuscript), available at http://papers.ssm.com/sol3/papers. cfm?abstract-id=281436.
157. See Masur, supra note 85, at 1063-67.
158. See Logue, supra note 49, at 1132, 1138-39.
159. See id. at 1144. Logue draws a parallel to government's obligation to fulfill its contractual obligations and, on the basis of this analogy, argues that the government should grant transition relief when changing incentive provisions. See id. at 1143-52.
160. See Shavell, supra note 60, at 73.
161. Eric Kades, Windfalls, 108 YALE L. J. 1489, 1491 (1999).
162. See Posner & Sunstein, supra note 54, at 82 (noting that "we [can] understand the idea of fairness... as a requirement that similarly situated people be treated similarly") ;
163. cf. Thomas Brennan, Lee Epstein & Nancy Staudt, Economic Trends and Judicial Outcomes: A Macrotheory of the Court, 58 DUKE L. J. 1191, 1206 (2009) (noting that, if "[s]imilarly situated litigants [are] denied uniform treatment in the courtroom, " then "perceptions of fairness would be damaged").
164. Pierson v. Post, 3 Cai. R. 175, 182 (N. Y. 1805) ;
165. see supra note 21 for discussion.
166. See, e.g., Johnston, supra note 21, at 858.
167. As a general matter, the law allows those who accede to windfalls to keep them.
168. See, e.g., City of Everett v. Estate of Sumstad, 631 P.2d 366 (Wash. 1981). Indeed, not only does the law allow one who accedes to a windfall to keep the profit, but the current tax law does not even tax the profit at that time.
169. See, e.g., BORIS I. BITTKER, MARTIN J. MCMAHON, JR. & LAWRENCE A. ZELENAK, FEDERAL INCOME TAXATION OF INDIVIDUALS ¶ 3.05[2] (2d ed. 2005) ;
170. Thomas L. Evans, The Taxation of Nonshareholder Contributions to Capital: An Economic Analysis, 45 VAND. L. REV. 1457, 1524 n. 235 (1992) ("If a person, through either skill or good luck, manages to purchase property from another at a price below its fair market value, the purchaser is not required to immediately include the bargain element in income.").
171. Cf. BITTKER ET AL., supra, ¶ 3.08[3] (noting that the tax treatment of an ordinary bargain is "quite different" from the tax treatment for a "'bargain purchase' in the sense in which this term is used by tax practitioners; viz., to denote a purchase of property for less than fair market value if the difference reflects an extraneous objective, such as the seller's desire to confer an economic advantage on the buyer, " where income is imputed for tax purposes).
172. The tax treatment of fortuitous finds, while less clear than that of windfalls, in practice seems also to give favorable tax treatment to those who benefit by happenstance.
173. See BITTKER ET AL. supra, ¶ 3.05[2] (noting that, "[a]lthough the treasure trove regulation clearly contemplates the inclusion in gross income of noncash treasure troves, there is virtually no judicial discussion of the taxability of such treasure troves, " which "suggests the IRS is generally willing-despite the treasure trove regulation-to treat noncash finds as zero basis assets, with taxation deferred until the found property is sold").
174. See Dhammika Dharmapala & Rohan Pitchford, An Economic Analysis of "Riding to Hounds": Pierson v. Post Revisited, 18 J. L. ECON. & ORG. 39, 54 (2002) (discussing the effect of enforcement costs on the economically optimal rule in Pierson v. Post) ;
175. but see id. at 55-58 (arguing that the rule advanced in the Pierson dissent may sometimes be economically preferable even where enforcement costs loom).
176. The decision (as expressed either in actual law or in practice) not to impose a tax on windfall gains can also be seen to be grounded in administrative ease.
177. See Evans, supra note 95, at 1524 n. 235 ("Generally, taxing persons on economic advantages they obtain in bargain purchases would be inadministrable; difficulties of valuation, liquidity, and enforcement would make this an impossible task.").
178. As compared to a traditional race to capture-which is determined by a court under a judicially-developed rule-retrospective allocation will presumably be effectuated by the legislature or an administrative body that will have the opportunity to reflect on the criteria it chooses to determine winners and allocate grandfathering rights.
179. I address below the question of whether awarding grandfathering relief bestows a windfall on existing actors in favor of new entrants.
180. See infra text accompanying notes 106-109.
181. See supra text accompanying notes 40-42.
182. See RAYMOND, supra note 36, at 53 ("Baselines can be determined on the basis of a single year or by averaging several years of prior use. Determining the precise method of setting the baseline is itself a thorny policy problem, given the possible variants and their potentially significant distributive impacts."). An amusing popular culture example of this can be found in the cinematic comic romp, It's a Mad, Mad, Mad, Mad World (1963). There, a number of automobile drivers and passengers pull to the side of the road to find a dying man who describes where to find a large buried treasure. Once the man has died, a suggestion is made for all present to join forces, and then find and share the treasure. An argument over apportionment ensues, with suggestions made to base apportionment on a per capita basis, on a per vehicle basis (without regard to the number of passengers in each vehicle), and on the basis of contribution to actually having helped the dying man. In the end, discussions break down and the various individuals race to try to reach, and claim, the treasure first.
183. See Alliance Against IFQs v. Brown, 84 F.3d 343, 352 (9th Cir. 1996) ("This is a troubling case. Perfectly innocent people going about their legitimate business in a productive industry have suffered greater economic harm because the federal regulatory scheme changed."). The Ninth Circuit in Alliance considered, and rejected, a challenge to the allocation method by a group of vessel owners and lessees who received no quota shares for that reason.
184. See supra text accompanying notes 64-65. The court also considered a challenge by workers that the allocation of quota shares to owners and lessees but not workers was not, as the governing statute required, "fair and equitable."
185. See Alliance, 84 F.3d at 348 (quoting 16 U. S. C. § 1851 (a) (4) (A) (2006)). Though it described the argument as "sensible, " the court proceeded to reject the argument, on two grounds. Id. First, the statute did not make the "fair and equitable" requirement the sole criteria with which the council had to comply.
186. See id. at 348-49. Second, the council's logic that owners and lessees have put capital at risk and thus deserve quota shares was sound: "The Secretary thought that the problem of overfishing resulted more from investment in boats than occupational choices of fishermen, so the administrative remedy should be measured by ownership and leasing of boats." Id. at 349.
187. For example, someone who chases a fox all day could actually capture the fox; Post, in contrast, did not, as a result of Pierson's presence and quick actions. Pierson v. Post, 3 Cai. R. 175, 182 (N. Y. 1805).
188. See supra text accompanying notes 73-76.
189. Cf. Alliance, 84 F.3d at 350 ("The Secretary is allowed... to sacrifice the interests of some groups of fishermen, for the benefit as the Secretary sees it of the fishery as a whole.").
190. See GUIDO CALABRESI & PHILIP BOBBITT, TRAGIC CHOICES 41-44 (1978) (discussing fairness problems that inhere in lotteries and other completely random distributions).
191. Cf. Nathaniel O. Keohane, Richard L. Revesz & Robert N. Stavins, The Choice of Regulatory Instruments in Environmental Policy, 22 HARV. ENVTL. L. REV. 313, 348-51 (1998) (transition relief can provide barrier against entry that protects existing market actors).
192. See Heinmiller, supra note 53, at 450 (noting that an allocation process that provides permits at no cost to those who already engage in the activity to be regulated "provides stakeholders with a scarce and valuable asset that can potentially provide them with windfall financial gains if traded").
193. See Nash & Revesz, supra note 16, at 1730-31.
194. Cf. Heinmiller, supra note 53, at 461 ("Potential sellers of resource rights... may resist selling their rights despite anticipated windfalls because these rights form the fundamental basis of livelihoods, communities, and cultures that are valued beyond economic calculus.") ;
195. Tiemey, supra note 14.
196. See The Emergency Economic Stabilization Act of 2008, the Energy Improvement and Extension Act of 2008, and the Tax Extenders and Alternative Minimum Tax Relief Act of 2008, Pub. L. No. 110-343, 122 Stat. 3765 (Oct. 3, 2008). For discussion
197. see, e.g., Rachel D. Godsil & David V. Simunovich, Protecting Status: The Mortgage Crisis, Eminent Domain, and the Ethic of Home Ownership, 77 FORDHAM L. REV. 949, 985-95 (2008).
198. See supra notes 70-71 and accompanying text;
199. Kaplow, supra note 31, at 584-87.
200. See Godsil & Simunovich, supra note 110, at 993 ("Proponents of direct government intervention... note that banks are simply 'too integral a part of the global economy' to be left 'stewfing] in the consequences of their own folly.'") (quoting Michael R. Sesit, Subprime Mess Highlights Need for Tough Rules, BLOOMBERG, Feb. 28, 2008, http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist- sesit&sid=a2um5kMtLCLM#).
201. See Dale Thompson, Regulation of Hedge Funds: Lessons from Market Failures, Business Organizations, and Environmental Policy (Oct. 4, 2008) (unpublished manuscript, on file with author). Thompson proceeds to argue that financial regulators might learn lessons from environmental regulation, where regulation is directed at minimizing and internalizing externalities.
202. See generally id
203. See supra text accompanying notes 40-41, 43, 47 (describing existing programs).
204. See Nash, supra note 7, at 490 (noting that EPA has arranged for the Chicago Board of Trade to handle the limited annual auction of sulfur dioxide emission allowances).
205. See supra note 8 and accompanying text.
206. See, e.g., Keohane, Revesz & Stavins, supra note 106, at n. 19.
207. See supra text accompanying notes 32-47.
208. Lueck, supra note 20, at 405 ("The rule of capture may not produce severe dissipation when there are but a few users or when there are 'plenteous' goods. Here, open access may persist optimally because few people are exploiting the resource, or because marginal use costs are high, or both." (footnote omitted)) ;
209. Johnston, supra note 21, at 859 ("In the natural resource area, whether th[e] problem [of rent dissipation and excessive entry] arises depends very much upon how abundant resources are relative to the number of people racing to acquire rights.") ;
210. id. at 860 ("When each user is small relative to the total number of users, they all ignore the marginal effect of their increased harvest on other users and increase harvest levels until average product equals average cost.").
211. See Lueck, supra note 20, at 400 ("[A]s the heterogeneity of claims... increases the level of dissipation will decrease. In the extreme case, where just one person has costs less than the net present value of the asset's flow, the first-best outcome is achieved. In this case, only one person finds it worthwhile to enter the race, so there is no dissipation. " (footnote omitted)) ;
212. see also Michael Abramowicz, A Theory of Copyright's Derivative Right and Related Doctrines, 90 MINN. L. REV. 317, 350 (2005) ("[I]f... parties are not identically situated, rent dissipation may be reduced or eliminated. To take an extreme example, if it is apparent that, regardless of the efforts of others, one party will definitely arrive first and capture all of the gold, then no one else will enter the race." (footnote omitted)).
213. See Abramowicz, supra note 120, at350.
214. See, e.g., Tiemey, supra note 14 (discussing effort creep of too many participants in New England fishery to capture too few fish).
215. See Lueck, supra note 20, at 399.
216. See id. at 401 ("If individual cost advantages can be eliminated through investment in the techniques of acquiring property rights, then all methods of initially establishing property rights will completely dissipate the value of the resource." (footnote omitted)).
217. See infra note 128.
218. The captor loses an undivided ownership interest in the captured property, but so too does everyone else who has a stake in the commons. In essence, the captor's gain of sole, individual ownership of the captured property far outweighs the loss of the undivided interest. Further, all other persons with a stake in the commons contribute to the captor's gain by in effect losing their undivided interests in the captured property. In this way, the captor imposes externalities on the other commons stakeholders.
219. The tragic scenario is likely to arise even where it is in no one's interest to engage in capture, because of the difficulty in reaching and enforcing an agreement not to race. For example, it may well be that the property held in commons will become more valuable (even after factoring in time discounting) if allowed to remain in commons. Still, each individual has a strong incentive to defect, capture property, reap gain for herself, and impose externalities on everyone else. (The tragedy of the commons can thus be seen as a multiplayer prisoners' dilemma.) In essence, even if the property would be worth more to me (and everyone else) later, because the property may not be around at the later time, I have an incentive to capture as much of the property as possible now. Because each individual has a strong incentive to defect-and because it takes only one erstwhile defector to create large incentives for others to defect-economic theory predicts that, absent a robust enforceable agreement (or equivalently strong community norms), all stakeholders will engage in the race to capture.
220. See generally Garrett Hardin, The Tragedy of the Commons, 162 SCIENCE 1243, 1244 (1968).
221. See, e.g., Tiemey, supra note 14.
222. Cf. Kades, supra note 91, at 1537 ("When locating minerals was largely serendipitous, as opposed to the result of the significant investments utilized in modern times, letting mineral wealth essentially fall into the lap of the purchaser of well-situated farm acreage did amount to a windfall.").
223. See, e.g., Tierney, supra note 14.
224. See supra text accompanying notes 66-69.
225. See Hope M. Babock, Grotius, Ocean Fish Ranching, and the Public Trust Doctrine: Ride 'Em Charlie Tuna, 26 STAN. ENVTL. L. J. 3, 11-12 & n. 30 (2007).
226. See, e.g., Tierney, supra note 14 (discussing the continuing deterioration of a New England fishery due to effort creep, and contrasting it with the wealth of fishermen in an Australian fishery that adopted fishing quotas). Professor Jason Johnston argues that the problems of rent dissipation, excessive entry, and resource depletion are not the result simply of the race to capture structure. He argues that the depletion in resource level should, over time, discourage prospective entrants from joining the race and existing race participants from further investments.
227. See Johnston, supra note 21, at 860-98. The real problem, Johnston continues, is government policies that encourage heavy investments and sunk costs into racing for particular resources. Id. at 857 ("[T]he recommended policies-such as those that encourage harvesters to avoid sunk costs in harvesting particular species and systems, and that develop economic alternatives to harvest-have been almost the opposite of those that governments have actually adopted.... [T]he major reason for the collapse and imperilment of species and ecosystems is not the bioeconomic dynamic set up by the open access rule of capture, but rather government policies that have systematically subsidized natural resource use and thereby discouraged exit from extractive (harvesting) industries.").
228. See Lueck, supra note 20, at 395 ("I conclude that actual legal rules of first possession anticipate the potential for dissipation and develop to limit it.").
229. See, e.g., Charlotte Hess & Elinor Ostrom, Ideas, Artifacts, and Facilities: Information as a Common-Pool Resource, 66 L. & CONTEMP. PROBS. 111, 121 (2003).
230. See supra note text accompanying notes 28-30.
231. See supra note 30 and accompanying text.
232. In addition, another question arises: if the race to capture will evolve, why should we expect it to evolve toward retrospective allocation? I address this question in Part II. B.
233. See supra the text accompanying notes 73-76.
234. See supra Part I. B.5.
235. See generally Zywicki, supra note 4.
236. See, e.g., Thomas W. Merrill, Explaining Market Mechanisms, 2000 U. ILL. L. REV. 275, 284;
237. Keohane, Revesz & Stavins, supra note 106, at 316. This may be changing, however.
238. See, e.g., Dean Scott, California Urges Auction of Allowances Under Federal Cap-and-Trade Legislation, DAILY ENVT. REP. (BNA), Oct. 9, 2007, at A-5.
239. Cf RAYMOND, supra note 36, at 18-19 ("Any limitations on use [of previously open-access resources]... create winners and losers: people who get more access versus those who get less, or people who pay more for their use versus people who pay less.").
240. See Keohane, Revesz & Stavins, supra note 106, at 347-53.
241. See generally MANCUR OLSON, THE LOGIC OF COLLECTIVE ACTION: PUBLIC GOODS AND THE THEORY OF GROUPS (1965).
242. See Levmore, supra note 81, at 1666-67 (describing transition relief as a way to compensate politically powerful interests who otherwise would stand to lose under, and therefore would oppose, a new legal regime).
243. See Keohane, Revesz & Stavins, supra note 106, at 348, 353.
244. See Merrill, supra note 141, at 287-88 (Firms that engage in polluting activities "will exert strong political pressure in opposition to any proposal for Pigouvian taxes or auctioned permits but [are] likely to have a much more equivocal response to grandfathered permits.") ;
245. Heinzerling, supra note 12, at 328-33 (explaining how Congress, in enacting the 1990 Clean Air Act Amendments, distributed sulfur dioxide emissions allowances to special interest groups) ;
246. cf. Lesley K. McAllister, The Overallocation Problem in Cap-and-Trade: Moving Toward Stringency, 34 COLUM. J. ENVTL. L. 395, 398-410 (2009) (arguing that cap-and-trade programs generally allocate more allowances than are environmentally and economically desirable).
247. See Keohane, Revesz & Stavins, supra note 106, at 350-51.
248. See id. at 359 (noting that, insofar as explicit cost-benefit analyses are not preferred by voters, "[grandfathered permits fare better on the visibility criterion than auctioned permits or taxes, because no money is exchanged at the time of the initial allocation. ").
249. See generally Nash, supra note 6.
250. Compare Clean Air Act § 404 (e) (3) tbl. A, 42 U. S. C. § 7651 c (eX3) tbl. A (2006) (table listing assignment of sulfur dioxide emissions allowances under the initial phase of the national sulfur dioxide trading regime)
251. with id. § 405, 42 U. S. C. § 7651d (2006) (setting forth criteria as basis for allocation of allowances under second, major phase of the national sulfur dioxide trading program).
252. See, e.g., Tom R. Tyler, Governing amid Diversity: The Effect of Fair Decisionmaking Procedures on the Legitimacy of Government, 28 LAW & SOC'Y REV. 809 (2004) (explaining that people consider procedural justice in evaluating matters of national policy and legislative action).
253. See supra text accompanying note 104-105.
254. Cf. Brett H. McDonnell, Two Cheers for Corporate Law Federalism, 30 J. CORP. L. 99, 137-38 (2004) (discussing how, because of the multiplicity of actors involved in federal lawmaking, the status quo of letting Delaware state law effectively set the standard may persist because some federal actors may check the attempt by other federal actors to change the field at the federal level) ;
255. David S. Law & Lawrence B. Solum, Judicial Selection, Appointments Gridlock, and the Nuclear Option, 15 J. CONTEMP. L. ISSUES 51 (2006) (explaining how changes to procedures governing the judicial appointments process must satisfy various factions in the Senate as well as the Executive to some extent). I am grateful to Amitai Aviram for suggesting these analogies.
256. Compare, in this regard, Saul Levmore's dichotomy between pessimistic stories for the evolution of property rights that are grounded public choice, and optimistic stories that are grounded in efficiency.
257. See Saul Levmore, Property's Uneasy Path and Expanding Future, 70 U. CHI. L. REV. 181, 182-84 (2003).
258. See Jonathan Remy Nash, Public Choice versus Efficiency: The Case of Property Rights in Road Traffic Management, 49 B. C. L. REV. 673, 682-83 (2008) (describing how political entrepreneurs can harness public opinion).
259. See RAYMOND, supra note 36, at 23-24 ("Even political scientists working on public choice theory, with its models of political behavior based on self-interest, have noted the likely influence of norms on legislative outcomes.") ;
260. id at 29-33 (noting that equity plays a larger role in property allocation schemes than most commentators acknowledge).
261. See supra text accompanying note 109.
262. See generally ELINOR OSTROM, GOVERNING THE COMMONS: THE EVOLUTION OF INSTITUTIONS FOR COLLECTIVE ACTION 90 (1990) ;
263. see also Elinor Ostrom, Reformulating the Commons, 6 SWISS POLL SCI. REV. 29, 40-43 (2000).
264. See supra text accompanying note 38.
265. Such a solution can be juxtaposed with settings-such as military base closure decisions that are delegated by Congress to independent commissions-where the legislature cedes power to an independent actor in order to avoid the political pressure that would be brought to bear were local interests free to lobby the body that is to make national allocation decisions. In such settings, the legislature cedes power both to maintain the integrity of the process and to avoid being dragged into battles as to which there will ultimately be losses imposed on some localities. For discussion, see Natalie Hanlon, Military Base Closings: A Study of Government by Commission, 62 U. COLO. L. REV. 331 (1991). For discussion of the effective use of ad hoc commissions to address politically challenging issues, including base closures
266. see Bradford C. Mank, Protecting the Environment for Future Generations: A Proposal for a "Republican" Superagency, 5 N. Y. U. ENVTL. L. J. 444, 489 (1996).
267. See Heinzerling, supra note 12, at 328-32.
268. Cf. Bruce Yandle & Stuart Buck, Bootleggers, Baptists, and the Global Warming Battle, 26 HARV. ENVTL. L. REV. 177, 182, 190 (2002) (describing bubbles under the Kyoto Protocol as a matter of political economy).
269. See Nash, supra note 7, at 522-23 (describing the allocation of Kyoto Protocol emissions quotas to former Soviet bloc countries and the associated issue of selling so-called "hot air" emissions quotas).
270. See id. at 534.
271. See supra notes 70-72 and accompanying text.
272. There are other settings in which legal uncertainty may discourage behavioral modifications that would otherwise be suboptimally high. Consider the question of why the doctrine of adverse possession does not overly encourage aggressive trespassers to attempt to obtain lands of others. One answer may be the unpredictable likelihood of success, even across numerous attempts at adverse possession. First, true owners' efforts to reclaim the land may be difficult to predict. Second, application of the doctrine of adverse possession is sufficiently unclear that one can rarely expect success with any degree of certainty.
273. See Lee Anne Fennell, Efficient Trespass: The Case for "Bad Faith" Adverse Possession, 100 Nw. U. L. REV. 1037, 1062 (2006) (noting that the outcome of adverse possession claims are rarely certain, in particular because "the successful adverse claimant [must] establish a variety of elements, each of which is open textured and subject to judicial interpretation").
274. Consider as well the thesis that incomplete compensation for takings claims leaves property owners sufficiently uncertain so as to cap suboptimally high investment.
275. See Thomas W. Merrill, Incomplete Compensation for Takings, 11 N. Y. U. ENVTL. L. J. 110, 132-33 (2002).
276. See supra note 81.
277. See supra text accompanying notes 155-163.
278. See Robert Cooter & Ariel Porat, Total Liability for Excessive Harm, 36 J. LEG. STUD. 63 (2007).
279. Id at 67.
280. Id.
281. See id. at 68-70.
282. Id. at 70 & n. 8.
283. See id. at 70.
284. I am grateful to Ariel Porat for this suggestion.
285. See, e.g., Posner & Sunstein, supra note 54, at 52-54;
286. Robert R. Nordhaus & Kyle W. Danish, Assessing the Options for Designing a Mandatory U. S. Greenhouse Gas Reduction Program, 32 B. C. ENVTL. AFF. L. REV. 97, 120-45 (2005).
287. For discussion, see Nordhaus & Danish, supra note 175, at 139-40.
288. See id. at 135-39;
289. Stavins, supra note 7, at 320-21 (2008) (advancing proposal for system that employs both auction and grandfathering of permits, with grandfathering phased out over time).
290. See Nordhaus & Danish, supra note 175, at 134 & n. 174.
291. See Posner & Sunstein, supra note 54, at 77-79.
292. See id. at 78 & n. 61;
293. John H. Cushman, Jr., Industries Press Plan for Credits in Emissions Pact, N. Y. TIMES, Jan. 3, 1999
294. sec. 1, at 1. Cf. James Salzman, Creating Markets for Ecosystem Services: Notes from the Field, 80 N. Y. U. L. REV. 870 (2005) (arguing in favor of markets that pay property owners for steps taken that provide valuable services to ecosystems). In keeping with the general notion of retrospective allocation, the precise criteria according to which credits will be allocated should remain unclear, lest there be too much effort either on reducing emissions or on lobbying for the creation of credits.
295. Cf. Cushman, supra (describing substantial industry efforts to have credits included in domestic implementation of Kyoto Protocol). Policymakers also may be concerned that having the government pay for past emissions reductions may be perceived by some as a commodification of the environment, with a resulting reduction in societal actors' willingness to engage in environmentally friendly behavior voluntarily and at no charge. For discussion
296. see Nash, supra note 6, at 331-32.
297. See, e.g., Immigration Reform and Control Act of 1986, PUB. L. No. 99-603, 100 Stat. 3359 (1986) (establishing a one-year amnesty period during which illegal immigrants who had lived and worked in the United States continuously since 1982 could apply for lawfully admitted temporary residence status).
298. See, e.g., Katherine D. Black, Stephen T. Black & Ryan H. Pace, Is the IRS the Solution to Illegal Immigration?, 35 WM. MITCHELL L. REV. 309, 315-16 (2008) ;
299. John Cornyn, Immigration Reform: Back to the Future, 115 YALE L. J. POCKET PART 112 (2006).
300. "While some adjustments have been made in the methods used to construct the [U. S. News & World Report] rankings, their basic structure has remained the same."
301. Michael Sauder, Strength in Numbers? The Advantages of Multiple Rankings, 81 IND. L. J. 205, 208 (2006).
302. Professor Jeffrey Stake explains: If important ranking systems include a given factor, schools will shift resources to improving that factor and away from factors that count for less in the rankings. This raises the issue of whether those changes in resource allocation improve legal education. If there was no systematic bias against an included factor before the rankings shifted incentives, the rankings push spending on that factor beyond the optimum. The rankings cause schools to devote too many resources to some goals and too little to others. According to Dean Kramer of Stanford Law School, "You distort your policies to preserve your ranking, that's the problem."
303. Jeffrey Evans Stake, The Interplay between Law School Rankings, Reputations, and Resource Allocation: Ways Rankings Mislead, 81 IND. L. J. 229, 232 (2006).
304. See id. at 232-42 (delineating incentives to which the U. S. News & World Report ranking system gives rise) ;
305. see also Sauder, supra note 183, at 211 ("[T]he U. S. News ranking has clearly altered the distribution of resources-resources of time, money, and attention-within law schools.") ;
306. Wendy Nelson Espeland & Michael Sauder, Rankings and Reactivity: How Public Measures Recreate Social Worlds, 113 AM. J. SOCIOLOGY 1, 25-29 (2007) (describing how law schools reallocate resources in response to rankings) ;
307. id. at 29-33 (discussing how law schools try to game the rankings systems).
308. Professor Stake elucidates: One effect of the hegemony of the U. S. News rankings is to create an incentive for schools to calculate and aim for an optimal mix of expenditures. What this means is that U. S. News may unwittingly be homogenizing legal education. With time, schools will learn which spending mix yields the greatest rankings bang and the optimum mix will tend to be the same for most schools. U. S. News will make it increasingly hard to experiment with different ways of producing an extraordinary product. Stake, supra note 184, at 242.
309. Cf. Robert D. Cooter, Introduction, 82 CAL. L. REV. 487, 489 (1994) ("Vagueness has value because it encourages diversity of behavior, which contributes to the continual refinement of the law by providing the necessary information. ").
310. See supra note 74.
311. See Sally Engle Merry, Measuring the World: Indicators, Human Rights, and Global Governance 11-13 (Aug. 24, 2009) (unpublished manuscript, on file with Ecology Law Quarterly) ;
312. AnnJanette Rosga & Margaret L. Satterthwaite, The Trust in Indicators: Measuring Human Rights, 27 BERKELEY J. INT' L L. 253, 263-79 (2009).
313. See Merry, supra note 188, at 16-17;
314. Rosga & Satterthwaite, supra note 188, at 285-87.