The institutional dynamics of transition relief

New York University Law Review

Volumn 85, Issue 2, 2010, Pages 393-456

  Masur, Jonathan S ^a   Nash, Jonathan Remy ^b  

^a UNIVERSITY OF CHICAGO   (United States)

^b EMORY UNIVERSITY   (United States)

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EID: 77954693439     PISSN: 00287881     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (312)

1. Transition relief, when provided by the government, usually has assumed the form of "grandfathering" preexisting behavior or compensating for its discontinuation. See, e.g., Louis Kaplow, Transition Policy: A Conceptual Framework, 13 J. CONTEMP. LEGAL ISSUES 161, 163 (2003) [hereinafter Kaplow, Transition Policy] ("[A] variety of transition provisions can be implemented, including partial or full compensation of losses and taxation of gains, grandfathering, phase-ins, and so forth."%);
2. cf. Jacob E. Gersen & Eric A. Posner, Timing Rules and Legal Institutions, 121 HARV. L. REV. 543, 584 (2007) (arguing that "Delay Rules" provide partial compensation alternative to generally assumed choice between "just compensation" and "no compensation"). This is not always the case, however. On occasion, the government grants a firm or industry valuable new rights at the same time that it imposes costly regulation-a type of regulatory tradeoff. The Hatch- Waxman Act, which established the modern regulatory regime concerning general pharmaceutical drugs, is an example of this type of regime. Pub. L. No.98-417, 98 Stat. 1585 (codified as amended in scattered sections of 15, 21, 35, and 42 U.S.C.);
3. see also Henry Grabowski, Patents and New Product Development in the Pharmaceutical and Biotechnology Industries, 8 GEO. PUB. POL'Y REV., Spring 2003, at 7, 11-14 (describing tradeoffs involved in statutory scheme). The arguments that we offer regarding transition relief apply equally to all types of government-provided relief, and so, in the Sections that follow, we discuss transition relief generally, with occasional references to particular grandfathering regimes for purposes of explication.
4. See, e.g., Jonathan Remy Nash & Richard L. Revesz, Grandfathering and Environmental Regulation: the Law and Economics of New Source Review, 101 NW. U. L. REV. 1677, 1678 (2007) (discussing grandfathering of pollution sources under Clean Air Act of 1970).
5. See, e.g., Eric A. Posner & Cass R. Sunstein, Should Greenhouse Gas Permits Be Allocated on a Per Capita Basis?, 97 CAL. L. REV. 51, 57-65 (2009) (highlighting unique issues associated with allocating greenhouse gas emissions permits at international level);
6. Robert N. Stavins, A Meaningful U.S. Cap-and-Trade System To Address Climate Change, 32 HARV. ENVTL. L. REV. 293, 320-321 (2008) (proposing system that both auctions and grandfathers permits, with grandfathering phased out over time).
7. See, e.g., Stephen Labaton & Eric Dash, Huge Bonus Hangs over Pay Review, N.Y. TIMES, Aug. 13, 2009, at B1 (reporting Citibank's argument that compensation it owes to trader is exempt from federal review on ground that "it is part of a contract signed before the law establishing the review system was passed").
8. E.g., Louis Kaplow, An Economic Analysis of Legal Transitions, 99 HARV. L. REV. 509, 533-36 (1986) [hereinafter Kaplow, Legal Transitions] (asserting that natural disasters and government-created risks are analogous); Kaplow, Transition Policy, supra note 1, at 176-77, 179 (same).
9. Kaplow, Legal Transitions, supra note 5, at 528-531
10. See, e.g., Lawrence Blume & Daniel L. Rubinfeld, Compensation for Takings: An Economic Analysis, 72 CAL. L. REV. 569, 582-599 (1984) (contending absence of private insurance against government action may necessitate compensation for government takings in order to minimize suboptimally low investments);
11. Kyle D. Logue, Tax Transitions, Opportunistic Retroactivity, and the Benefits of Government Precommitment, 94 MICH. L. REV. 1129, 1138-1143 (1996) (arguing that without transition relief, tax incentives may become more expensive to government);
12. Jonathan Masur, Judicial Deference and the Credibility of Agency Commitments, 60 VAND. L. REV. 1021, 1025, 1041-47 (2007) (asserting transition relief may be appropriate to induce actors to undertake socially desirable voluntary projects)
13. Jonathan Remy Nash, Allocation and Uncertainty: Strategic Responses to Environmental Grandfathering, 36 ECOLOGY L.Q. 809, 831, 833-34 (2009) [hereinafter Nash, Allocation and Uncertainty] (arguing that transition relief occasionally may enhance government legitimacy);
14. Nash & Revesz, supra note 2, at 1727-28, 1730-32 (noting that limited transition relief might be justified on grounds of investment efficiency and fairness); Steven Shavell, On Optimal Legal Change, Past Behavior, and Grandfathering, 37 J. LEGAL STUD. 37, 44-50 (2008) (advocating transition relief where social costs of transition relief's absence outweigh social costs of transition relief%);
15. cf. Saul Levmore, Changes, Anticipations, and Reparations, 99 COLUM. L. REV. 1657, 1665-1666 (1999) (describing transition relief as way to compensate politically powerful interests who otherwise would stand to lose under, and therefore would oppose, new legal regime).
16. See, e.g., Nash & Revesz, supra note 2, at 1727-1728 (advocating limiting transition relief to actors who invest in advanced control technology ahead of legal requirements).
17. We note at the outset that we are not concerned here with every conceivable type of regulation that a legislature or agency might implement. Our focus is on economic regulations of all types-environmental protections, workplace safety laws, food quality regulations, etc. We place to the side all strictly "social" regulation, such as rules regarding marriage or abortion. Issues stemming from California's recent prohibition on same-sex marriage after its prior legalization, for instance, are beyond the scope of this Article. While we recognize that the line between these two categories may not be entirely clean or precise, we will generally focus on only those types of regulations that money alone can compensate.
18. Kaplow, Legal Transitions, supra note 5.
19. Id. at 533-36
20. see also DANIEL SHAVIRO, WHEN RULES CHANGE: AN ECONOMIC AND POLITICAL ANALYSIS of TRANSITION RELIEF AND RETROACTIVITY 27-32 (2000) (discussing incentive effects on societal actors of ex ante likely direction of rule change).
21. E.g., Kaplow, Legal Transitions, supra note 5, at 533-536
22. Id. at 528-531
23. Id. With respect to policy-based changes in the law, Daniel Shaviro argues that it might be optimal both to compensate those who stand to lose under a new legal regime and also to seek compensation from those who stand to gain. SHAVIRO, supra note 11, at 99-100. He recognizes, however, that the political reality is that those who stand to lose are much more likely to obtain compensation than are those who stand to gain likely to be compelled to surrender it. Id. at 100-101 Given this asymmetry, he concludes that the better norm is to deny transition relief across the board. Id. at 101. For a discussion of Shaviro's view with respect to non-policy-based legal changes, see infra note 42 and accompanying text.
24. See Kaplow, Transition Policy, supra note 1, at 178-186 (predicting greater efficiency from private insurance scheme than from transition relief).
25. See, e.g., Kaplow, Legal Transitions, supra note 5, at 527-528 ("Insurance is one of the more common techniques for mitigating risk . . . .").
26. In addition to private insurance, some actors are able to hedge against future economic change using futures contracts. See, e.g., Eric J. Pan, Single Stock Futures and Crossborder Access for U.S. Investors, 14 STAN. J.L. BUS. & FIN. 221, 239 (2008) ("Futures contracts are used to lock in the price of assets in the future to protect the investor from adverse changes in the spot market price of the asset.").
27. See Blume & Rubinfeld, supra note 7, at 592-597 (explaining absence of private insurance markets against legal change).
28. See Kaplow, Legal Transitions, supra note 5, at 545 n.99 (noting possibility of government support of private insurance).
29. This is not to suggest that, normatively, the absence of an insurance market should mandate transition relief. We mean only to suggest that the analogy between the settings is not so clear, and also that, as a positive matter, transition relief might be more common than government mitigation of natural social and economic change given the absence of a private insurance market for regulatory change.
30. Shavell, supra note 7, at 38.
31. Id. at 38-39.
32. Id. at 39.
33. See Masur, supra note 7, at 1041-47 (arguing that vulnerability to legal transitions may discourage investment); Nash & Revesz, supra note 2, at 1727-1728 (noting that limited transition relief might be justified on grounds of investment efficiency).
34. See Logue, supra note 7, at 1138-1143 (arguing that without transition relief, tax incentives may become more expensive to government).
35. See Blume & Rubinfeld, supra note 7, at 582-599 (contending that absence of private insurance against government action may necessitate compensation for government takings in order to minimize suboptimally low investments).
36. Masur, supra note 7, at 1041-1047
37. Id. at 1025
38. See also Christopher Serkin, Entrenching Environmentalism: Private Conservation Easements over Public Land, U. CHI. L. REV. (forthcoming 2010), available at http://ssrn.com/abstract=1474288 (arguing that legislative entrenchment of preexisting private law might be proper in some circumstances, but only if appropriately limited).
39. Nash & Revesz, supra note 2, at 1727-1728 (footnotes omitted).
40. Id.; cf. Masur, supra note 7, at 1043 (noting that actors may avoid investments in absence of commitment to regulatory stability).
41. Logue, supra note 7, at 1138-1139
42. Id. at 1139.
43. See generally U.S. CONST. amend. V (prohibiting taking of private property "for public use, without just compensation").
44. Blume & Rubinfeld, supra note 7, at 582-599
45. Levmore, supra note 7, at 1665-1666
46. Id.
47. Nash, Allocation and Uncertainty, supra note 7, at 831, 833-834
48. Id. at 834 (suggesting that avoidance of externalities justified government relief to financial sector in recent economic crisis).
49. Id. (arguing that transition relief may be justified "to protect lifestyles and community cohesion").
50. Nash & Revesz, supra note 2, at 1730-1731 (footnote omitted).
51. See Kyle D. Logue, Legal Transitions, Rational Expectations, and Legal Progress, 13 J. CONTEMP. LEGAL ISSUES 211, 213 (2003) (noting that "competitive, evolutionary pressures" that make corporations likely to anticipate risks do not apply to individuals).
52. SHAVIRO, supra note 11, at 101-103
53. See, e.g., Blume & Rubinfeld, supra note 7, at 572 ("Although one might expect investors to avoid the costs associated with risk by obtaining insurance in the private market, such insurance is not available because of market failure.").
54. Investors might well prefer that publicly owned and traded companies operate neutrally with respect to risk. An investor can hedge risk on her own simply by assembling a diverse portfolio of assets. In reality, of course, agency costs within firms often lead them to behave in risk-averse fashion. Executives seeking to protect their jobs will avoid risky behavior, even at the expense of lower expected net returns. See William W. Bratton, Jr., Corporate Debt Relationships: Legal Theory in a Time of Restructuring, 1989 DUKE L.J. 92, 128 n.163 (describing management's risk aversion due to its " undiversifiable investment in human capital");
55. Reinier H. Kraakman, Corporate Liability Strategies and the Costs of Legal Controls, 93 YALE L.J. 857, 864 (1984) (noting that market pressures are unlikely to overcome top management's aversion to risk). This risk-averse behavior makes regulatory (or other) insurance potentially socially valuable even for publicly traded firms with diversified owners, which otherwise might manage risk effectively on their own. There may also be some risks small enough to allow large firms to self-insure (i.e., absorb the risk and count on the firm's large size to protect it against significant shocks). However, for smaller firms most regulatory risks will be too large to permit self-insurance; and some regulatory events-major carbon taxes, for instance-may be so significant that even large firms cannot self-insure. There are thus many contexts in which self-interested firm executives would pursue outside insurance.
56. See Kaplow, Transition Policy, supra note 1, at 197-198 (noting that compensation for preexisting interests may reduce or eliminate resistance of those who otherwise would stand to lose under new legal regime and that "private insurance may also produce a similar effect").
57. If parties did not know in advance whether they would be winners or losers under a new legal regime, they would all elect to insure, leaving them in similar positions once the new regime was implemented. But see William A. Fischel & Perry Shapiro, Takings, Insurance, and Michelman: Comments on Economic Interpretations of "Just Compensation" Law, 17 J. LEGAL STUD. 269, 282-283 (1988) (discussing how insurance against takings would not cover demoralization costs-that is, negative feelings about government that result from exercise of eminent domain).
58. Cf. Jonathan Remy Nash, Framing Effects and Regulatory Choice, 82 NOTRE DAME L. REV. 313, 340 (2006) (describing "optimal level of pollution" analogously).
59. See Bradley C. Karkkainen, Bottlenecks and Baselines: Tackling Information Deficits in Environmental Regulation, 86 TEX. L. REV. 1409, 1413-1415 (2008) (detailing information deficits faced by government agencies in evaluating environmental regulatory decisions).
60. Cf. Bruce A. Ackerman & Richard B. Stewart, Reforming Environmental Law, 37 STAN. L. REV. 1333, 1342-1343 (1985) (arguing that implementation of marketable pollution emission allowance scheme in place of environmental command-and-control regulation "would immediately eliminate most of the information-processing tasks that are presently overwhelming the federal and state bureaucracies" and "[i]nstead of giving the job of economic and technological assessment to bureaucrats, . . . would put the informationprocessing burden precisely where it belongs: upon business managers and engineers who are in the best position to figure out how to cut back on their plants' pollution costs").
61. Some commentators laud the notion of Congress setting the level of pollution under a cap-and-trade regime. See, e.g., id. at 1353 (noting regime's advantages over commandand- control policies);
62. Cass R. Sunstein, Administrative Substance, 1991 DUKE L.J. 607, 636 [hereinafter Sunstein, Administrative Substance] (observing that one benefit of cap-andtrade system as compared to command-and-control regulation is that cap-and-trade systems put political and public focus on how much pollution will be allowed);
63. Cass R. Sunstein, Democratizing America Through Law, 25 SUFFOLK U. L. REV. 949, 967 (1991) [hereinafter Sunstein, Democratizing America] (same). This argument is made, however, in the context of "democratizing" the development of environmental law by focusing attention on an issue that the public can easily digest, not on the idea that in fact government is by design more likely than a private market to arrive at an "optimal" level of pollution.
64. See Jonathan Remy Nash, Too Much Market? Conflict Between Tradable Pollution Allowances and the "Polluter Pays" Principle, 24 HARV. ENVTL. L. REV. 465, 525 n.224 (2000) (noting possibility that democratically determined pollution cap might differ from optimal level of pollution).
65. See Kenneth S. Abraham & Lance Liebman, Private Insurance, Social Insurance, and Tort Reform: Toward a New Vision of Compensation for Illness and Injury, 93 COLUM. L. REV. 75, 106-107 (1993) (discussing differences between social insurance and private insurance in context of tort reform);
66. Abraham Bell & Gideon Parchomovsky, Takings Reassessed, 87 VA. L. REV. 277, 309 (2001) (describing how private insurance would not be perfect substitute for takings liability because it does not cover demoralization costs suffered by society when government takes property). (Pubitemid 33656644)
67. Stuart Minor Benjamin & Arti K. Rai, Fixing Innovation Policy: A Structural Perspective, 77 GEO. WASH. L. REV. 1, 42 (2008).
68. For a review of capture theory, see Nicholas Bagley & Richard L. Revesz, Centralized Oversight of the Regulatory State, 106 COLUM. L. REV. 1260, 1284-1292 (2006).
69. See Bradford C. Mank, Superfund Contractors and Agency Capture, 2 N.Y.U. ENVTL. L.J. 34, 49 (1993) (arguing that "agency capture is a continuum" on which outside influence may not rise to level of total capture). Moreover, the success of interest groups at attaining transition relief at one stage may serve to fuel demands for additional transition relief-including extensions of earlier relief-at later stages. As Nash and Revesz explain: "Transition relief . . . generally gives rise to . . . an incentive for existing actors to try to preserve and extend transition relief so they can continue to extract the economic rents it creates." Nash & Revesz, supra note 2, at 1729. Thus, lobbying begets transition relief, which may in turn beget more lobbying later for even more (or extensions of) transition relief.
70. Levmore, supra note 7, at 1665.
71. See, e.g., BRUCE A. ACKERMAN & WILLIAM T. HASSLER, CLEAN COAL/DIRTY AIR 44-54 (1981) (describing how polluting sources in eastern United States secured amendment of clean air legislation to limit ability of western states, where air was relatively cleaner, to attract prospective competitors through promise of less stringent air quality controls).
72. Levmore, supra note 7, at 1665-1666
73. E.g., Bell & Parchomovsky, supra note 50, at 307-10;
74. Blume & Rubinfeld, supra note 7, at 590-92;
75. Steve P. Calandrillo, Eminent Domain Economics: Should "Just Compensation" Be Abolished, and Would "Takings Insurance" Work Instead?, 64 OHIO ST. L.J. 451, 513-516 (2003);
76. Kaplow, Legal Transitions, supra note 5, at 537-41;
77. Shavell, supra note 7, at 78.
78. See supra Part I.C.
79. Our claim that a functioning market for private regulatory insurance would enhance social welfare is based upon the arguments of numerous other scholars detailed in Part I. We do not intend to break any new ground on this question here. Nonetheless, we pause to address briefly one commonly raised objection to transition relief, namely, that it will disincentivize firms from adapting to new rules in socially beneficial ways. Were it to exist, private regulatory insurance would be unlikely to generate this unwelcome effect so long as insurance contracts were structured properly. As we describe below in the subsection on moral hazard, these contracts should be written to provide fixed payouts in the event of regulation, not unlimited liability based upon an insured's actual losses. See infra Part II.B.1.a. Consider, for instance, the effect of a carbon tax on the American automobile industry. A carbon tax will make SUVs more expensive relative to smaller, more fuel-efficient cars. Consumers will accordingly shift some consumption to those smaller cars, and automotive companies will adjust production towards those types of vehicles as well. This shift will occur irrespective of whether the industry is insured against carbon regulation: So long as insurance contracts are written to provide fixed payments in the event of regulation, insurance will not change firms' incentives at the margin. The firm will collect the fixed insurance payout regardless of what action it takes in response to the regulation. The firm will then make the same competitive decision it would have made absent insurance; it has no reason to adjust its behavior. Thus, the presence of insurance will not significantly dissuade firms from anticipating legal change, which is sometimes required as a matter of efficiency. See Michael J. Graetz, Legal Transitions: the Case of Retroactivity in Income Tax Revision, 126 U. PA. L. REV. 47, 65-66 (1977) (explaining that it is often efficiency enhancing when private parties anticipate legal change); Levmore, supra note 7, at 1663 (same). Insurance might have some effect on industries' incentives to anticipate legal change. But even this will be a second-order effect. Again, insurance would not disincentivize firms from taking into consideration the possibility of future regulation at the margin; it would only affect the risk profile of the various options available to the firm. Thus, even if regulation is endogenous to firm behavior-e.g., the more that automobile manufacturers switch to fuel-efficient cars, the more likely it is that the government will impose a carbon tax- the availability of insurance would not significantly alter the probability of legal change. The principal effects of insurance would be to cushion the industry against the costs of switching production and possibly to disincentivize the industry from lobbying against regulatory change.
80. See infra Part II.B.1.b (describing effect of regulatory insurance on industry lobbying). It is thus conceivable that the availability of insurance would have salutary effects on the rate of legal change. Cf. Levmore, supra note 7, at 1668-74 (describing ways in which transition relief can encourage legal change by mitigating losses of losers in new regime, but arguing such benefits are outweighed by risk of rent-seeking). Automobile firms would be disincentivized from altering their behavior only if they were insured based on actual lost profits. In this circumstance, insured firms would have little or no incentive to mitigate the harm to their businesses caused by regulation-in fact, they might as well shut down. This presents a typical case of moral hazard, a threat that we believe can be dealt with by contract. We discuss the contractual solution to this problem infra Part II.B.1.
81. See, e.g., Shavell, supra note 7, at 78;
82. David A. Dana, Am. Enter. Inst. for Pub. Policy Research, Reforming Section 10 and the Habitat Conservation Program 27 (Sept. 15, 2009) (unpublished manuscript, on file with the New York University Law Review), available at http://www.aei.org/docLib/Dana.pdf.
83. See, e.g., Kaplow, Legal Transitions, supra note 5, at 537-541 (taking existence of private market insurance for granted in discussing moral hazard problem).
84. It is noteworthy that a robust market exists for insurance against foreign government expropriation of American firms' assets abroad. See Vicki Been & Joel C. Beauvais, the Global Fifth Amendment? NAFTA's Investment Protections and the Misguided Quest for an International "Regulatory Takings" Doctrine, 78 N.Y.U.L. REV. 30, 111-14 (2003) (describing market). Yet even this insurance covers only genuine seizure of property, not standard regulation. The policies written by the two major providers are illustrative. The Multilateral Investment Guarantee Agency insures only against [a]ny legislative action or administrative action or omission attributable to the host government which has the effect of depriving the holder of a guarantee of his ownership or control of, or a substantial benefit from, his investment, with the exception of non-discriminatory measures of general application which governments normally take for the purpose of regulating economic activity in their territories. Convention Establishing the Multilateral Investment Guarantee Agency art. 11(a), Oct. 11, 1985, T.I.A.S. No.12,089, 1508 U.N.T.S. 99 (emphasis added). Similarly, the Overseas Private Investment Corporation (OPIC) insures policyholders only against "total expropriation" in violation of international or local laws, not standard legal regulation.
85. See Been & Beauvais, supra, at 112-113 & n.383 (citing variety of OPIC documents and discussing possible limits of coverage, including regulatory expropriations).
86. See, e.g., Blume & Rubinfeld, supra note 7, at 593-595 (discussing complete lack of competitive insurance markets for regulatory and physical takings);
87. Calandrillo, supra note 57, at 513-514 (arguing that subjective valuations of real property by owners pose problems for market value-based compensation);
88. see also Lee Anne Fennell, Unbundling Risk 34-36 (Jan. 31, 2010) (unpublished manuscript, on file with the New York University Law Review) (blaming failure of markets to emerge in part on inability to separate insurable risks from those under individual's control%);
89. cf. Robert G. Chambers, Insurability and Moral Hazard in Agricultural Insurance Markets, 71 AM. J. AGRIC. ECON. 604, 604 (1989) (noting that moral hazard is one of foremost obstacles to establishing private agricultural insurance markets).
90. See, e.g., Kenneth J. Arrow, Uncertainty and the Welfare Economics of Medical Care, 53 AM. ECON. REV. 941, 961 (1963) (examining moral hazard as limitation on insurance).
91. See generally Mark V. Pauly, the Economics of Moral Hazard: Comment, 58 AM. ECON. REV. 531 (1968) (applying economic analysis to moral hazard in medical insurance);
92. Steven Shavell, On Moral Hazard and Insurance, 93 Q.J. ECON. 541 (1979) (discussing partial solutions to moral hazards)
93. For a broader treatment of the topic, see generally Tom Baker, On the Genealogy of Moral Hazard, 75 TEX. L. REV. 237 (1996).
94. See Kaplow, Legal Transitions, supra note 5, at 538 & n.79 (explaining interaction of moral hazard and efficient precautions); Chunchi Wu & Peter F. Colwell, Moral Hazard and Moral Imperative, 55 J. RISK & INS. 101, 112-115 (1988) (same).
95. See Bengt Holmström, Moral Hazard and Observability, 10 BELL J. ECON. 74, 74 (1979) (noting role of asymmetric information in causing moral hazard problems due to one contracting party's inability to observe perfectly other party's behavior).
96. See supra note 59 and sources cited therein.
97. Social costs are minimized when both parties take all efficient precautions. Robert Cooter, Unity in Tort, Contract, and Property: the Model of Precaution, 73 CAL. L. REV. 1, 6 (1985).
98. An insurer could employ the same mechanisms that the EPA might use to verify a firm's production or use of a particular chemical and, in many situations, could simply piggyback off of already existing permitting and disclosure requirements. The additional advantage of these verification efforts is that, in many instances, fraudulent disclosures would be penalized civilly or criminally by state or federal authorities rather than as mere instances of contract breach.
99. For a discussion of the use of feature ratings in assessing insurance premiums, see KENNETH S. ABRAHAM, DISTRIBUTING RISK: INSURANCE, LEGAL THEORY, AND PUBLIC POLICY 79-82 (1986).
100. See Calandrillo, supra note 57, at 493-495 (discussing excess incentives to invest in improvements under system of government compensation).
101. See Benjamin J. Richardson, Mandating Environmental Liability Insurance, 12 DUKE ENVTL. L. & POL'Y F. 293, 295-296 (2002) (describing structure of conventional insurance contracts).
102. See Michael Spence & Richard Zeckhauser, Insurance, Information, and Individual Action, 61 AM. ECON. REV. 380, 383 (1971) (analyzing manner in which insurers write typical contracts);
103. see also Kaplow, Legal Transitions, supra note 5, at 538-540 (same).
104. of course, arson and theft for hire similarly involve human-catalyzed insurable risks. But these are rare, illegal activities deterred by the criminal justice system, and so they do not raise the same concerns as the possibility of legal individual action to influence the likelihood of the occurrence of a covered event.
105. A similar concern motivated the traditional notion that an insurance firm will provide coverage only against events that arise from pure "fortuity." See ERIC MILLS HOLMES & MARK S. RHODES, HOLMES'S APPLEMAN ON INSURANCE § 1.4(A) (Eric Mills Holmes ed., 2d ed. 1996) (describing fortuity and exclusion of intentional conduct from coverage);
106. BARRY R. OSTRAGER & THOMAS R. NEWMAN, HANDBOOK ON INSURANCE COVERAGE DISPUTES § 8.02, at 561 (14th ed. 2008) ("Thus, by definition, insurance is not available for losses that the policyholder knows of, planned, intended, or is aware are substantially certain to occur.");
107. JEFFREY W. STEMPEL, STEMPEL ON INSURANCE CONTRACTS § 1.06(A)(1) (3d ed. Supp. 2010) (to same effect).
108. 2 U.S.C. §§ 1603-1604 (2006).
109. 2 U.S.C. § 434(a)-(c) (2006).
110. 5 U.S.C. § 552 (2006).
111. 5 U.S.C. §§ 551-559 (2006).
112. See Steven P. Croley, Theories of Regulation: Incorporating the Administrative Process, 98 COLUM. L. REV. 1, 125 (1998) ("[G]ood-government supplements to the APA . . . make participation easier by facilitating agency monitoring . . . . [T]hese acts owe their origin in part to efforts to render administrative government more open by lowering the costs of monitoring agency deliberations." (footnotes and internal quotation marks omitted)).
113. See generally Cass R. Sunstein, Informational Regulation and Informational Standing: Akins and Beyond, 147 U. PA. L. REV. 613, 614 (1998) (describing use of federal statutes to reveal information on public deliberations and lobbying).
114. Indeed, monitoring even the most basic details of a firm's lobbying efforts would appear to be a substantial undertaking. The sheer volume of issues that large firms spend resources on can be astounding. For example, a study conducted after the passage of the Lobbying Disclosure Act of 1995, Pub. L. No.104-65, 109 Stat. 691 (codified as amended at 2 U.S.C. §§ 1601-1612 (2006)), found that during the six-month period between July and December 1996, General Motors filed 47 reports with the government detailing 157 issues on which they had lobbied and spent over $15 million.
115. Frank R. Baumgartner & Beth L. Leech, Studying Interest Groups Using Lobbying Disclosure Reports, 18 VOX POP NEWSL. POL. ORGS. & PARTIES (Ray C. Bliss Inst. of Applied Politics, Univ. of Akron, Akron, Ohio), Summer 1999, at 1, 2, available at http://www.uakron.edu/bliss/docs/Vol-18-Iss-1. pdf. Furthermore, the lobbyists engaged by interest groups will often have the discretion to choose both the forms that their lobbying efforts will take and the intensity of those efforts.
116. For a discussion of the flexible approach lobbyists apply to issue advocacy, see generally Thomas T. Holyoke, Choosing Battlegrounds: Interest Group Lobbying Across Multiple Venues, 56 POL. RES. Q. 325 (2003). Lastly, it is difficult to imagine how a firm could accurately report the total quantity and effectiveness of its informal or grassroots lobbying efforts.
117. See generally KENNETH M. GOLDSTEIN, INTEREST GROUPS, LOBBYING, AND PARTICIPATION IN AMERICA (1999) (providing broad-ranging analysis of lobbying in United States). Given the range of activities in which firms engage, difficult determinations might have to be made about whether ostensibly nonpolitical activities have some influence on political access. For example, should charitable donations be monitored as part of a firm's lobbying effort?
118. See Craig Smith, the New Corporate Philanthropy, 72 HARV. BUS. REV., May-June 1994, at 105, 109-110 (describing use of charitable donations as form of lobbying).
119. See Frank R. Baumgartner & Beth L. Leech, Interest Niches and Policy Bandwagons: Patterns of Interest Group Involvement in National Politics, 63 J. POL. 1191, 1195 tbl.1 (2001) (finding that among businesses that participated in substantial lobbying activity, 73% utilized professional lobbying firms and only 27% engaged in their own lobbying activities).
120. This practice might of course create other problems of correlated risk, which we address infra Part II.B.3. But if insurers are diversified adequately, it should be possible for them to obtain economies of scale without subjecting themselves to undue threats.
121. See Baumgartner & Leech, supra note 82, at 1194-1198 (showing that businesses and trade associations account for vast majority of lobbying expenditures);
122. see also Ron Chepesiuk, the Environmental Lobbying Game: Who Plays It on Capitol Hill and How, 102 ENVTL. HEALTH PERSP. 640, 640-642 (1994) (discussing lobbying efforts of trade associations in area of environmental regulation). We hasten to add that we take no position on whether lobbying is socially beneficial or harmful, or what amount of lobbying is optimal. We mean only to argue that large-scale regulatory insurance would not likely affect the overall quantity of lobbying. The most significant change would simply be a substitution away from trade associations and other interest groups and toward insurance companies.
123. E.g., Anne O. Krueger, the Political Economy of the Rent-Seeking State, 64 AM. ECON. REV. 291, 295 (1974) (arguing that rent-seeking often leads to welfare losses);
124. see George J. Stigler, the Theory of Economic Regulation, 2 BELL J. ECON. & MGMT. SCI. 3, 4-6 (1971) (arguing that demand from industry groups shapes form of regulations%);
125. cf. Michael Lusztig, the Limits of Rent Seeking: Why Protectionists Become Free Traders, 5 REV. INT'L POL. ECON. 38 (1998) (arguing that governments can turn rent-seekers into proponents of free trade by convincing them that rents are unavailable).
126. See Mark Pauly & Sean Nicholson, Adverse Consequences of Adverse Selection, 24 J. HEALTH POL., POL'Y & L. 921, 922 (1999) (describing self-selection process creating adverse selection problem);
127. see also George L. Priest, the Current Insurance Crisis and Modern Tort Law, 96 YALE L.J. 1521, 1540-1542 (1987) (discussing systemic effects of adverse selection);
128. Michael Rothschild & Joseph Stiglitz, Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information, 90 Q.J. ECON. 629, 636 (1976) (discussing equilibrium of market with imperfect information).
129. See Fennell, supra note 63, at 41-43 (describing manner in which adverse selection problems can frustrate systems of insurance).
130. E.g., Blume & Rubinfeld, supra note 7, at 595-96;
131. Calandrillo, supra note 57, at 526-27;
132. Fischel & Shapiro, supra note 46, at 286 ("An explanation for lack of private taking insurance . . . is adverse selection. A public planner might tip off landowners of an impending taking and encourage them to apply for insurance in order to reduce political opposition to his project.").
133. See Calandrillo, supra note 57, at 526 (noting individuals with inside knowledge of likely takings will buy insurance at disproportionate rates).
134. In contrast, adverse selection problems are far less likely with respect to takings of, for instance, beachfront property. It is no secret whether a parcel of land includes beach access, and this is precisely the type of information that insurers are likely to collect before writing insurance contracts.
135. See supra notes 76-80 and accompanying text (describing public nature of lobbying and regulation, which suggests that regulated firms have no greater access to relevant information on regulators than insurers do).
136. See Richard A. Epstein, Products Liability as an Insurance Market, 14 J. LEGAL STUD. 645, 648-653 (1985) (explaining economic advantages of ability to diversify risk).
137. See Dwight M. Jaffee & Thomas Russell, Catastrophe Insurance, Capital Markets, and Uninsurable Risks, 64 J. RISK & INS. 205, 206 (1997) (noting that "catastrophe risks" may be uninsurable if they are "too large");
138. see also Mario Miranda & Dmitry V. Vedenov, Innovations in Agricultural and Natural Disaster Insurance, 83 AM. J. AGRIC. ECON. 650 (2001) (discussing unwillingness of traditional insurance markets to cover agricultural products in event of catastrophe and offering as solution possible securitization of these risks%);
139. cf. Daniel A. Farber, Uncertainty as a Basis for Standing, 33 HofSTRA L. REV. 1123, 1129 (2005) ("[T]he president of the Reinsurance Association of America has reportedly warned that global warming could bankrupt the insurance industry.").
140. See Ronald E. Ferguson, Chairman, General Re Corp., Statement on the Impact of the September 11, 2001 Terrorist Attacks on the U.S. Insurance and Reinsurance Industry (Sept. 26, 2001), http://financialservices.house.gov/media/ pdf/092601fe.pdf (predicting that U.S. insurance industry would be unable to sustain effects of multiple attacks on level of those witnessed on September 11). However, the extent to which insurers will be liable in the event of a future terrorist attack is still largely uncertain.
141. See Michelle E. Boardman, Known Unknowns: the Illusion of Terrorism Insurance, 93 GEO. L.J. 783, 790-798 (2005) (explaining that, in spite of federal government's efforts to require coverage of terrorist attacks by insurance companies, vast majority of policies still contain valid exclusions for nuclear, biological, and chemical attacks, and arguing that terrorism in United States is essentially uninsurable).
142. See, e.g., CONG. BUDGET ofFICE, THE TOTAL COSTS of CLEANING UP NONFEDERAL SUPERFUND SITES 15-16 (1994), available at http://www.cbo.gov/ftpdocs/48xx/ doc4845/ EntireReport.pdf (estimating that continuing costs to private parties for Superfund cleanups would exceed $43 billion).
143. For a wide-ranging look at and critique of ex ante cost assessments and the lack of retrospective empirical studies determining compliance costs for various regulatory programs, see generally Thomas O. McGarity & Ruth Ruttenberg, Counting the Cost of Health, Safety, and Environmental Regulation, 80 TEX. L. REV. 1997 (2002).
144. Regulations in a state such as California can affect businesses located elsewhere that merely do business in California, forcing them to adjust their practices if they hope to maintain their access to that valuable market. See John M. Broder, Obama Directs Regulators To Tighten Auto Standards, N.Y. TIMES, Jan. 26, 2009, http://www.nytimes.com/2009/ 01/27/us/politics/27calif.html (describing effects of allowing states such as California and New York to set higher automobile mileage standards).
145. This is the equivalent of a homeowner's insurance policy protecting only the furniture or the second bedroom against fire, rather than the entire house.
146. Suppose there are fifty California firms that use the same chemical and only two regulatory insurers in the marketplace. Each insurer might be willing to write only twenty contracts on the same regulatory risk within the same jurisdiction for fear of taking on too much correlated risk. Under these circumstances, only forty of the firms would be able to obtain coverage for regulatory risk related to that chemical, and ten firms would remain uninsured.
147. It is worth noting that we do not think that the threat of correlated risks can account fully for the absence of a catastrophe or terrorism insurance market, either. All of these same options for managing risk are available to the firms that write such policies, and firms need only limit the number of policies written in one geographic area if they wish to contain their overall risk exposure. Furthermore, financial services firms are adept at slicing financial products and securities into tranches, each of which contains a small piece of a large number of financial instruments. The resulting financial products can help distribute risk and guard against all but the most widely spread national risks. Natural disasters are essentially never national phenomena, and only the most serious conceivable terrorist threat would have national reach-at which point paying insurance claims might no longer be a relevant consideration. Instead, we think that the lack of a viable market for these types of insurance products is attributable to the cause we describe infra Part II.B.4.
148. We hasten to add that a transfer from Democratic to Republican control might be no less threatening than a transfer in the opposite direction, despite the fact that Republicans are conventionally thought to favor less regulation than Democrats. In many cases, firms may wish to insure against deregulation; for instance, a firm that has developed a safe alternative to CFCs and staked a sizeable investment in their continued regulation might want to insure against deregulation of the ozone-depleting gas. The model we present here is fully generalizable to any legislative or agency action, regardless of direction.
149. See Anne Joseph O'Connell, Political Cycles of Rulemaking: An Empirical Portrait of the Modern Administrative State, 94 VA. L. REV. 889, 931 chart 1 (2008) (demonstrating that federal bureaucracy as whole produces on order of 800-1000 regulations per year).
150. See id. (comparing George H.W. Bush, Bill Clinton, and George W. Bush administrations).
151. See Kenneth S. Abraham, Environmental Liability and the Limits of Insurance, 88 COLUM. L. REV. 942, 955-976 (1988) (laying blame for unavailability of environmental liability insurance in mid-1980s partly on inability of insurance firms to assess expected losses due to high levels of legal uncertainty created by then-recent expansion of environmental liability).
152. For a discussion of risk classification, see generally Kenneth S. Abraham, Efficiency and Fairness in Insurance Risk Classification, 71 VA. L. REV. 403 (1985), which attempts to resolve the tension between the efficiency-promoting and risk-distributional features of classification
153. and Keith J. Crocker & Arthur Snow, the Efficiency Effects of Categorical Discrimination in the Insurance Industry, 94 J. POL. ECON. 321 (1986), which argues that costless imperfect categorization, such as that based on age, sex, or race, always increases efficiency.
154. See Regina Austin, the Insurance Classification Controversy, 131 U. PA. L. REV. 517, 519-526 (1983) (explaining methodology employed by insurance companies to estimate accident rates for classes of insured individuals).
155. O'Connell, supra note 101, at 931. We have not been able to locate reliable data, but we suspect that states are somewhat less prolific, with dozens to hundreds of state regulatory acts per year.
156. the most prolific regulator, the Department of the Interior, averages approximately 100 regulations per year, with a high of 200. Id. at 939 chart 5. A variety of other federal agencies, including the Department of Commerce, Department of Transportation, SEC, FCC, and EPA average between 25 and 100 regulations per year. Id. In addition, many agency regulations are not truly "regulatory" in the sense that private firms or other interested parties would understand the term. Many concern internal agency procedures or set nonbinding guidelines and thus are unlikely to be the type of actions that firms would wish to insure against. Presumably, a large percentage of the Department of the Interior's activities, which concern internal management of federal lands, fall into that category. Accordingly, the number of data points available to an insurer are likely substantially lower than the rough estimates that we present as upper bounds.
157. Cf. Dan M. Kahan & Donald Braman, Cultural Cognition and Public Policy, 24 YALE L. & POL'Y REV. 149 (2006) (describing effect of differing cultural worldviews on risk perception and policy priorities);
158. Masur, supra note 7, at 1041-1047 (describing possibility of rapid shifts in government policy and potentially deleterious effects of such shifts).
159. See Cass R. Sunstein, of Montreal and Kyoto: A Tale of Two Protocols, 31 HARV. ENVTL. L. REV. 1, 13-14 (2007) (describing public reaction to discovery of ozone-depleting effects and subsequent industry reductions on production).
160. It is, of course, possible that some major change in law or technology-the repeal of speed limits or the advent of airbags-could have dramatic effects on accident rates or costs. But these sorts of events are uncommon and often predictable, and they produce new equilibria that again become susceptible to large-scale data collection and analysis. In the end, our point is a comparative one: Pricing automobile insurance has become a science due to the predictable nature of accident rates, but pricing regulatory insurance remains ineluctably an art.
161. In other words, automobile accidents are independent events, while regulatory activities are not. Because of the idiosyncrasies inherent to the regulatory process, it is unlikely that insurers will have enough information to navigate the endogeneities involved in pricing insurance contracts.
162. Cf. Merle Black, the Transformation of the Southern Democratic Party, 66 J. POL. 1001, 1002-1005 (2004) (describing diminishing power and presence of conservative whites in southern Democratic Party over time and rise of Republican Party as viable alternative).
163. As noted above, this type of clause is likely to be included in a regulatory insurance contract in order to avoid risks associated with moral hazard. See supra notes 76-80 and accompanying text.
164. See Beth S. Noveck & David R. Johnson, A Complex(ity) Strategy for Breaking the Logjam, 17 N.Y.U. ENVTL. L.J. 170, 177 (2008) (describing regulations as "a fait accompli" before traditional notice-and-comment rulemaking purports to solicit outside expertise);
165. see also E. Donald Elliott, Re-inventing Rulemaking, 41 DUKE L.J. 1490, 1492-1494 (1992) (arguing that formal public notice-and-comment procedures have little to no effect on rulemaking but are used primarily to build detailed record for judicial review after proposed rule has already "jelled" into its final form);
166. Stephanie Stern, Cognitive Consistency: Theory Maintenance and Administrative Rulemaking, 63 U. PITT. L. REV. 589, 621-623 (2002) (suggesting that agencies can suffer from "lock-in," or inflexible commitment to previously decided upon policy, which undermines "regulatory goals of participation and deliberation").
167. See Peter L. Strauss, Rules, Adjudications, and Other Sources of Law in an Executive Department: Reflections on the Interior Department's Administration of the Mining Law, 74 COLUM. L. REV. 1231, 1238 (1974) (noting that decisions are often unavailable and that affected parties often lack notification);
168. Russell L. Weaver, Chenery II: A Forty-Year Ret- rospective, 40 ADMIN. L. REV. 161, 165-166 (1988) (citing criticism of adjudicative process for lack of notice or public input).
169. See Brian Galle & Mark Seidenfeld, Administrative Law's Federalism: Preemption, Delegation, and Agencies at the Edge of Federal Power, 57 DUKE L.J. 1933, 1949-52 (2008) (arguing that internal congressional processes, including private conference committee meetings and strategic voting behavior, lead to legislative transparency that is "only skin deep" for all but most savvy and connected special interest groups).
170. Cf. W. Brinkley Dickerson, Jr. et al., Note to SEC: "Reasonably Likely To Be Enacted?" You Have Got To Be Kidding!, TROUTMAN SANDERS, Mar. 3, 2010, http://www. troutmansanders.com/note-to-sec-reasonably-likely-to-be- enacted-you-have-got-to-bekidding- 03-03-2010 (citing Disclosure Related to Climate Change, Securities Act Release No. 9106, Exchange Act Release No. 61,469, 75 Fed. Reg. 6290 (Feb. 8, 2010)) (expressing disbelief that private firms could possibly gauge which regulations or legislation are likely to be enacted in given year). The SEC interpreted § 303 of Regulation SK, 17 C.F.R. § 229.303 (2009), to require management to "evaluate whether . . . pending legislation or regulation is reasonably likely to be enacted. Unless management determines that it is not reasonably likely to be enacted, it must proceed on the assumption that the legislation or regulation will be enacted." Disclosure Related to Climate Change, 75 Fed. Reg. at 6296.
171. We suspect that a similar explanation underlies the lack of catastrophe or terrorism insurance. Devastating hurricanes and crippling acts of terrorism are similarly infrequent, highly contingent events for which no reliable actuarial data exists. Lacking traditional predictive tools, insurers are likely reticent to gamble on uncertain outcomes with high variance.
172. Cf. Robert B. Ahdieh, Making Markets: Network Effects and the Role of Law in the Creation of Strong Securities Markets, 76 S. CAL. L. REV. 277, 336-341 (2003) (suggesting that government can play role in overcoming network effects that might impede development of robust private markets);
173. Amitai Aviram, Regulation by Networks, 2003 BYU L. REV. 1179, 1184-1195 (describing situations in which government regulation is and is not necessary to facilitate private ordering).
174. In theory, increased sanctions for fraud help to deter fraudulent behavior by consumers, lowering costs for insurers and reducing the premiums that honest insurance customers must pay. Cf. Mark A. Cohen, the Economics of Crime and Punishment: Implications for Sentencing of Economic Crimes and New Technology offenses, 9 GEO. MASON L. REV. 503, 506-507 (2000) (discussing fraud risk and attempts to prevent fraud as increasing costs for other consumers).
175. Similarly, securities disclosure laws such as Sarbanes-Oxley represent governmental attempts to cure irrationalities, failures, and information asymmetries in the securities markets. See Pub. L. No.107-204, 116 Stat. 745 (codified as amended in scattered sections of 11, 15, 18, 28, and 29 U.S.C.). Whether they are successful or necessary is a separate matter, and one on which we express no opinion here.
176. Compare J. Robert Brown, Jr., Criticizing the Critics: Sarbanes-Oxley and Quack Corporate Governance, 90 MARQ. L. REV. 309, 319-334 (2006) (arguing that it is too early to determine whether Sarbanes-Oxley has been successful)
177. with Kate Litvak, Sarbanes-Oxley and the Cross-listing Premium, 105 MICH. L. REV. 1857, 1875-95 (2007) (finding that Sarbanes-Oxley has created greater costs than benefits for certain classes of firms as investors believed it would).
178. See 5 U.S.C. § 553(b)(3) (2006) (permitting rulemaking without notice and comment under certain circumstances).
179. of course, significant costs would accompany these measures-costs that might well outweigh whatever benefits they would provide. We raise these possibilities only as a thought experiment, in the interest of analyzing what measures Congress might take to facilitate pricing of regulatory insurance.
180. See generally Teresa Dale Pupillo, the Changing Weather Forecast: Government in the Sunshine in the 1990s-An Analysis of State Sunshine Laws, 71 WASH. U. L.Q. 1165 (1993) (cataloging state "sunshine laws" that provide for open government and greater public information on legislative and regulatory processes).
181. See supra notes 111-112 and accompanying text.
182. See, e.g., DeRieux v. Five Smiths, Inc., 499 F.2d 1321, 1332 (Temp. Emer. Ct. App. 1974) (permitting agency to avoid notice-and-comment rulemaking because of fear that private parties would evade rules and render them useless);
183. Clay Broad. Corp. of Tex. v. United States, 464 F.2d 1313, 1320 (5th Cir. 1971) (permitting agency to proceed without notice-and-comment rulemaking because of unacceptable delay that procedure would entail).
184. In a more straightforward fashion, a bank might create a derivative that is worth $1 if the S&P 500 Index closes above 1000 points on December 31, 2010, and $0 if it closes below 1000 points on that date. A derivative might also be written to be worth $1 if the Boston Red Sox win the 2010 World Series and $0 if they do not.
185. For instance, if the median trader believes that there is a fifty percent chance that the Red Sox will win the World Series, the Red Sox derivatives will trade at around fifty cents.
186. Miranda & Vedenov, supra note 93, at 650 (adding that high rates lead to decreased demand and adverse selection problems).
187. Id. at 652. The derivative solves the moral hazard problem by acquiring value based on events (e.g., the weather) that no one can control, as opposed to events that are under the farmer's influence (e.g., the farmer's crop yield).
188. See Standard & Poor's, Case-Shiller Home Price Indices, http://www.standardand poors.com/home/en/us (follow "S&P/Case-Shiller Home Price Indices" hyperlink) (last visited Mar. 2, 2010).
189. Intrade, http://www.intrade.com (last visited Jan. 19, 2010).
190. There is also the matter of legalizing these markets in the United States; Intrade's legal status is somewhat uncertain. The only operating real-money information market whose legality is not in question in the United States is the Iowa Electronic Markets, run by the University of Iowa's Tippie College of Business.
191. See Iowa Electronic Markets, http://www.biz.uiowa.edu/iem/ (last visited Mar. 21, 2010). There is also a new information market that plans to allow participants to bet real money on Hollywood box office figures.
192. See Joseph Plambeck, A Place To Bet Real Money on Movies, N.Y. TIMES, Mar. 10, 2010, available at http://www.nytimes.com/2010/03/11/business/media/ 11futures.html. of course, this market will be of little interest to regulated firms outside of Hollywood.
193. Intrade, supra note 131 (use "Market Search" to locate market, then look at value in "Vol" column of displayed table). This low trading volume is potentially due to a number of factors, including the questionable legality of trading on Intrade and the lack of interest in those particular markets. Still, the extremely modest volume is striking and likely indicative of larger problems.
194. Cf. supra Part II.A (discussing need for regulatory insurance in order to encourage investment).
195. See supra Part II.B.4 (discussing difficulty of pricing regulatory insurance).
196. See supra notes 76-80 and accompanying text.
197. This is the approach currently taken by the Iowa Electronic Markets. For an analysis of different methods for structuring prediction markets, see Michael Abramowicz, Infor mation Markets, Administrative Decisionmaking, and Predictive Cost-Benefit Analysis, 71 U. CHI. L. REV. 933, 948-949 (2004).
198. See U.S. Dep't of the Treasury, How Treasury Auctions Work, http://www.treasury direct.gov/instit/auctfund/work/work.htm (last visited Mar. 21, 2010).
199. Firms might also attempt to hedge risk by engaging in more unconventional behavior, such as purchasing other companies whose success is negatively correlated with their own. For instance, imagine that Ford Motor Company is considering making substantial investments in designing vehicles powered by natural gas. If executives at Ford fear that greenhouse gas regulation could raise the price of natural gas and diminish consumer interest in the cars, they might consider purchasing a company that manufactures wind energy turbines as a hedge. Yet this option is hardly straightforward. At the limit, it might commit a firm to owning and running another company engaged in a completely separate- even diametrically opposed-business. It is surely not efficient for executives at an automobile company to manage a wind energy firm. Even if nothing more than the purchase of stock were involved, firms still face significant hurdles in finding the proper hedge. Imagine that, instead of buying a wind energy corporation, Ford instead makes a significant investment in the firm. Ford would now be forced to hedge against losses by that company that have nothing to do with greenhouse gas regulation-for instance, a general downturn in demand for wind turbines, or an increase in the price of a key production input. These hedges might in turn create further risks, which Ford would cover with additional investments. This in turn would create further risks, and so forth. In essence, a firm would be forced to acquire a highly complex bundle of securities in a quixotic effort to isolate a specific business risk. It is thus not surprising that this type of behavior is not widely observed.
200. See Abramowicz, supra note 137, at 961-92 (analyzing usefulness of subsidizing prediction markets); Michael Abramowicz & M. Todd Henderson, Prediction Markets for Corporate Governance, 82 NOTRE DAME L. REV. 1343, 1351-53 (2007) (describing process of subsidizing corporate prediction markets). Ideally, the relevant governmental policymakers- agency employees and congressional staff-would be involved, although such efforts might be foiled by public corruption and gift laws. See 5 U.S.C. § 7353 (2006) (prohibiting gifts to federal employees); 18 U.S.C. § 201 (2006) (federal public corruption law).
201. See David M. Pennock, A Dynamic Pari-Mutuel Market for Hedging, Wagering, and Information Aggregation, in EC '04: PROCEEDINGS of THE 5TH ACM CONFERENCE ON ELECTRONIC COMMERCE 170, 171-178 (2004) (describing design of pari-mutuel information market, which can continuously incorporate information and is highly liquid and risk-free for market institutions).
202. See Robin Hanson, Combinatorial Information Market Design, 5 INFO. SYS. FRONTIERS 107, 109-113 (2003) (describing design of market scoring system, which aims to overcome incentive problems for information acquisition and sharing).
203. See Abramowicz, supra note 137, at 959-60 (describing operation and virtues of market scoring systems); Abramowicz & Henderson, supra note 140, at 1352-53 (same); Pennock, supra note 141, at 171 (describing "infinite liquidity" of pari-mutuel markets). A full description of the operation of these types of markets is beyond the scope of this Article. For further discussion, see sources cited supra notes 141-143
204. See Abramowicz & Henderson, supra note 140, at 1346 (reviewing literature on prediction markets' success).
205. Nonetheless, it might be interesting to witness the newly incentivized newsgathering by Washington, D.C., reporters if such a system were in place.
206. Cf. Posting of Jonathan Masur to University of Chicago Law School Faculty Blog, Strategic Manipulation of the Information Markets, http://uchicagolaw. typepad.com/faculty/ 2008/10/just-over-a-wee.html (Oct. 6, 2008, 01:40:13 PM) (describing potential manipulation of Intrade political markets during 2008 election).
207. In addition, a relatively accurate information market could produce other benefits, even if it never generated sufficient liquidity to allow firms to hedge. If the market reflected a high probability of legal change, firms could respond accordingly in anticipation. The same would be true for regulatory insurance, were it to exist. If premiums reflected a high likelihood of regulation, firms could anticipate legal change.
208. Cf. Bi-Metallic Inv. Co. v. State Bd. of Equalization, 239 U.S. 441, 445 (1915) (holding that due process right to direct voice in adoption of policy does not attach to broad legislative decisions that affect large swaths of population).
209. See, e.g., Nash & Revesz, supra note 2, at 1713-1715 (describing how "new source review" under Clean Air Act applies where modification to existing facility which otherwise would be grandfathered is " substantial").
210. See, e.g., Logue, supra note 7, at 1176-1180 (describing difficulty of deciding this question in context of changes to tax law).
211. See, e.g., Jonathan Remy Nash & Richard L. Revesz, Markets and Geography: Designing Marketable Schemes To Control Local and Regional Pollutants, 28 ECOLOGY L.Q. 569, 585 (2001) [hereinafter Nash & Revesz, Markets and Geography] (describing methods by which permits are grandfathered under Clean Air Act's national sulfur dioxide trading program).
212. See supra note 149 and accompanying text.
213. See PATRICK J. ROHAN, ZONING AND LAND USE CONTROLS § 41.03[4]-[5] (2009) (discussing grandfathering in zoning laws).
214. See, e.g., 42 U.S.C. § 12183(a)(2) (2006) (providing that facility owners shall make alterations "to the maximum extent feasible" so that "the path of travel to the altered area and the bathrooms, telephones, and drinking fountains serving the altered area[ ] are readily accessible to and usable by individuals with disabilities" but only "where such alterations . . . are not disproportionate to the overall alterations in terms of cost and scope" (emphasis added)); 28 C.F.R. § 36.403(f)(1) (2009) ("Alterations made to provide an accessible path of travel to the altered area will be deemed disproportionate to the overall alteration when the cost exceeds 20% of the cost of the alteration to the primary function area.").
215. See supra note 150.
216. See, e.g., Stephen W. Sather, the Great Bankruptcy Rush of 2005 and Its Aftermath: the View from Texas, AM. BANKR. INST. L. REV., Sept. 2006, at 34, 34 ("[T]he signing of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 . . . set off a massive rush to the bankruptcy courts.").
217. See supra note 151 and accompanying text.
218. See generally Nash, Allocation and Uncertainty, supra note 7 (discussing methods of allocating finite natural resources).
219. See supra notes 51-53 and accompanying text (discussing possibility of capture in transition relief context).
220. Cf. Whitman v. Am. Trucking Ass'ns, 531 U.S. 457, 472-476 (2001) (rejecting argument that directive requiring agency to set standard to protect public health failed to provide "intelligible principle" against which to gauge agency action, thus indicating that legislative delegation was proper).
221. Cf. B. Timothy Heinmiller, the Politics of "Cap and Trade" Policies, 47 NAT. RESOURCES J. 445, 449-451 (2007) (breaking process of implementing cap-and-trade emissions allowance regime into three steps-setting cap, allocating allowances, and then permitting trading-and noting that each step raises distinct political pressures and concerns).
222. See supra notes 148-151 and accompanying text.
223. In addition, we acknowledge that merely because we can disaggregate the constituent steps of affording transition relief does not mean in practice that government actors in fact divide the process in this way, or that responsibility for the steps is divvied up among multiple actors. For example, the first phase of the sulfur dioxide emissions allowance trading program under the Clean Air Act Amendments of 1990 involved Congress deciding (i) that allowances would be distributed via grandfathering, (ii) exactly which industrial plants would receive allowances, and (iii) exactly how many allowances each plant would receive.
224. See Lisa Heinzerling, Selling Pollution, Forcing Democracy, 14 STAN. ENVTL. L.J. 300, 328-332 (1995) (discussing evidence of groups influencing Congress in establishing Clean Air program);
225. Paul L. Joskow & Richard Schmalensee, the Political Economy of Market-Based Environmental Policy: the U.S. Acid Rain Program, 41 J.L. & ECON. 37, 51-58 (1998) (same);
226. Nash & Revesz, Markets and Geography, supra note 151, at 585 (summarizing initial allowance allocation). Some existing practices, of course, may not be normatively desirable. Our point is simply that disaggregation allows us to consider what distributions of responsibility would be normatively preferable.
227. See, e.g., Alliance Against IFQs v. Brown, 84 F.3d 343, 352 (9th Cir. 1996) (discussing value of transition relief).
228. See supra notes 37-39 and accompanying text (discussing legitimacy as possible justification for transition relief).
229. See supra notes 40-42 and accompanying text (discussing fairness as possible justification for transition relief).
230. See supra notes 24-34 and accompanying text (discussing investment incentives as possible justification for transition relief).
231. See Levmore, supra note 7, at 1665-1667 (discussing tradeoffs involved in decision to compensate politically powerful losers when enacting new regulatory scheme).
232. Cf. Ackerman & Stewart, supra note 49, at 1353 (lauding tradable pollution permit regimes over command-and-control regimes to achieve environmental goals on ground that former regimes vest important decision of how much overall pollution should be allowed with legislature, thus enhancing democracy);
233. Sunstein, Administrative Substance, supra note 49, at 636 (same); Sunstein, Democratizing America, supra note 49, at 967 (same).
234. In a cap-and-trade system, the government caps the total acceptable amount (over a period of time, usually a year) of behavior that the new legal regime otherwise outlaws. It then divides that total cap among a number that it distributes to societal actors, who then may trade them. Nash, supra note 47, at 321. Each permit authorizes its holder to engage in a set amount of the restricted behavior, and only those with permits may engage in the behavior at all. Id.
235. the EPA's tradable permits program, though not technically an emissions regulation program, phased out the use of lead in gasoline during the 1980s. See Nash, supra note 49, at 488-489
236. See Lesley K. McAllister, the Overallocation Problem in Cap-and-Trade: Moving Toward Stringency, 34 COLUM. J. ENVTL. L. 395, 407 (2009) (describing cap employed by Chicago Emissions Reduction Market System).
237. Cf. supra note 59 (arguing that fixed insurance payments will not change firms' incentives at margin).
238. See Alliance Against IFQs v. Brown, 84 F.3d 343 (9th Cir. 1996) (adjudicating litigation challenging allocation of fisheries quotas). In Alliance, the court considered a chal lenge by workers that the council's allocation of quota shares to owners and lessees but not workers was not, as the governing statute required, "fair and equitable." See id. at 348 (quoting 16 U.S.C. § 1851(a)(4)(A) (2006)). Though it described the argument as "sensible," id., the court proceeded to reject the argument on two grounds. First, the statute did not make the "fair and equitable" requirement the sole criteria with which the council had to comply. See id. at 348-349 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.
239. In the context of international trade agreements, "safeguards relief" provisions provide loopholes that countries may invoke when a domestic industry is put in a precarious economic position by the implementation of a new trade accord. For discussion, see, for example, Alan O. Sykes, the Persistent Puzzles of Safeguards: Lessons from the Steel Dispute, 7 J. INT'L ECON. L. 523, 526-538 (2004) (describing provisions in international trade agreements and as implemented under U.S. law and discussing how such provisions work).
240. For example, trade adjustment assistance programs provide protection to those who suffer disemployment by virtue of new free trade agreements. See 19 U.S.C. § 2271(a) (2006) (establishing mechanism by which adversely affected workers may apply for relief);
241. Paul T. Decker & Walter Corson, International Trade and Worker Displacement: Evaluation of the Trade Adjustment Assistance Program, 48 INDUS. & LAB. REL. REV. 758, 759-760 (1995) (providing overview of Trade Adjustment Assistance program)
242. see also Joskow & Schmalensee, supra note 163, at 50 (describing controversy over Byrd Amendment to 1990 Clean Air Act that would have provided benefits to coal mine employees who lost their jobs);
243. Arnold W. Reitze, Jr., the Legislative History of U.S. Air Pollution Control, 36 HOUS. L. REV. 679, 721-722 (1999) (same).
244. See Heinmiller, supra note 161, at 457 ("Considering the high stakes nature of the allocation process, users and potential users are strongly motivated to protect their essential self-interests, so the allocation process is best understood as a distributive conflict between rival user groups presided over by governmental regulators . . . . [R]ival users . . . are typically multiple and highly fragmented.").
245. the legislative and executive branches are not the only branches of government that may promulgate a new legal regime. When a court announces a new decision, that announcement itself may raise questions of legal transition relief. See infra notes 196-98 and accompanying text. This type of setting lies beyond the scope of this Article for several reasons. First, courts announcing a new interpretation of law may believe, alternatively, that they are actually announcing a "new rule" of law, or simply that they are "clarifying" preexisting law. The latter case presumably does not raise questions of transition relief. Second, to the extent that a court decision may have retroactive application, it traditionally has been the court itself that determines the retroactive effect of its ruling. See, e.g., Harper v. Va. Dep't of Taxation, 509 U.S. 86, 100 (1993) (finding prior ruling to have retroactive effect and rejecting state court's ruling on issue of retroactivity). Indeed, efforts by other branches to dictate retroactive effects of laws on court decisions have met with court disapproval on separation of powers grounds. See Plaut v. Spendthrift Farm, Inc., 514 U.S. 211, 217-19 (1995) (declaring unconstitutional congressional attempt to use new, extended statute of limitations to open cases already dismissed under old statute of limitations and now-final judgments).
246. But cf. Danforth v. Minnesota, 128 S. Ct. 1029 (2008) (holding that state courts were free to apply new constitutional rule of criminal procedure retroactively even where federal courts would not). Third, settings where courts announce new rules of law lie beyond the paradigmatic "new legal regime" setting with which we are concerned in this Article: We are interested here in settings where there is a new, broad legal regime affecting numerous actors. Courts rarely announce such regimes and, to the extent they do so, it is usually a matter of consequence, not design.
247. See generally Frank B. Cross, Shattering the Fragile Case for Judicial Review of Rulemaking, 85 VA. L. REV. 1243, 1327-33 (1999) (arguing for complete abandonment of judicial review of agency rulemaking)
248. Colin S. Diver, Statutory Interpretation in the Administrative State, 133 U. PA. L. REV. 549, 592-98 (1985) (concluding that courts should defer to agencies where Congress has endowed agencies with significant policymaking responsibility);
249. Cynthia R. Farina, Statutory Interpretation and the Balance of Power in the Administrative State, 89 COLUM. L. REV. 452, 467-526 (1989) (arguing that judicial deference to agencies is unconstitutional);
250. Matthew C. Stephenson, Legislative Allocation of Delegated Power: Uncertainty, Risk, and the Choice Between Agencies and Courts, 119 HARV. L. REV. 1035, 1049-1070 (2006) (arguing that agencies tend to be consistent across issues but variable over time, while courts tend to be consistent across time but variable across issues, and that Congress should take these features into account in structuring delegations);
251. Cass R. Sunstein, On the Costs and Benefits of Aggressive Judicial Review of Agency Action, 1989 DUKE L.J. 522, 522-529 (evaluating costs and benefits of courts as legal authority).
252. Cf. supra note 169 (identifying commentators who advocate, on grounds of democratic accountability, congressional determination of caps in cap-and-trade pollution programs).
253. For a critical examination, see Jane S. Schacter, Digitally Democratizing Congress? Technology and Political Accountability, 89 B.U. L. REV. 641, 643-648 (2009), which questions whether Congress is as accountable as it could be.
254. See, e.g., Nathaniel O. Keohane, Richard L. Revesz & Robert N. Stavins, the Choice of Regulatory Instruments in Environmental Policy, 22 HARV. ENVTL. L. REV. 313, 322-25 (1998) (describing legislation as product of supply by legislators and demand by special interests)
255. Saul Levmore, Two Stories About the Evolution of Property Rights, 31 J. LEGAL STUD. S421, S425-29 (2002) (describing argument that property systems are designed to benefit well-organized interest groups);
256. Thomas W. Merrill, Explaining Market Mechanisms, 2000 U. ILL. L. REV. 275, 280-281 (describing argument that legislation tends to be designed to reward politically powerful groups).
257. See Heinzerling, supra note 163, at 328-32 (explaining that much of allocation of emissions allowances under national sulfur dioxide trading program established under 1990 amendments to Clean Air Act was attributable to rent-seeking); Joskow & Schmalensee, supra note 163, at 51-58 (same).
258. See supra note 177 and accompanying text. Congress's freedom to pass laws on an individualized basis is also limited. See Schiavo ex rel. Schindler v. Schiavo, 403 F.3d 1223, 1226-1227 (11th Cir. 2005) (alluding to, without resolving, possible unconstitutionality of congressional statute designed to change legal standards to benefit particular plaintiff in individual case);
259. Schiavo ex rel. Schindler v. Schiavo, 404 F.3d 1270, 1272-1275 (11th Cir. 2005) (Birch, J., specially concurring in denial of rehearing en banc) (arguing that statute was unconstitutional on separation of powers grounds).
260. See, e.g., Galle & Seidenfeld, supra note 116, at 1959 (stating that, as compared to agency staff, congressional staffs lack substantive expertise and professional connections).
261. See, e.g., id. (noting expertise of agency staff in comparison to congressional committee staff members); William W. Buzbee, Preemption Hard Look Review, Regulatory Interaction, and the Quest for Stewardship and Intergenerational Equity, 77 GEO. WASH. L. REV. 1521, 1543 (2009) (noting great expertise of federal regulators as first movers in their respective areas).
262. Cf. Catherine M. Sharkey, What Riegel Portends for FDA Preemption of State Law Products Liability Claims, 103 NW. U. L. REV. 437, 445 (2009) (identifying state law's conflict with "federal regulatory framework" as area that "might fall outside the expertise of the agency").
263. We employ this terminology not to distinguish between agencies such as the EPA and cabinet-level agencies such as the Department of Labor, but to distinguish between agencies under the control of the President ("executive branch" agencies) and independent agencies. The latter are discussed below.
264. See Mark Seidenfeld, the Psychology of Accountability and Political Review of Agency Rules, 51 DUKE L.J. 1059, 1068-1091 (2001) (describing and assessing executive and legislative oversight of agency rulemaking).
265. Id. at 1091-1093
266. See, e.g., Whitman v. Am. Trucking Ass'ns, 531 U.S. 457 (2001) (upholding congressional delegation to EPA of authority to set standard requisite to protect public health).
267. See, e.g., Thomas W. Merrill, Capture Theory and the Courts: 1967-1983, 72 CHI.- KENT L. REV. 1039, 1064-67 (1997) (noting judicial awareness of risks of agency capture).
268. See, e.g., Jonathan Remy Nash, Prejudging Judges, 106 COLUM. L. REV. 2168, 2171 (2006) (noting that "independence frees judges to make unpopular decisions")
269. Jonathan Remy Nash & Rafael I. Pardo, An Empirical Investigation into Appellate Structure and the Perceived Quality of Appellate Review, 61 VAND. L. REV. 1745, 1752 (2008) (same).
270. See Adeno Addis & Jonathan Remy Nash, Identitarian Anxieties and the Nature of Inter-tribunal Deliberations, 9 CHI. J. INT'L L. 613, 615-617 (2009) (discussing judicial deliberation);
271. Harry T. Edwards, the Effects of Collegiality on Judicial Decision Making, 151 U. PA. L. REV. 1639, 1644-1670 (2003) (discussing judicial collegiality).
272. See Nash, supra note 193, at 2171 (characterizing judicial independence and judicial accountability as "competing demands upon the judiciary").
273. See Jonathan Remy Nash, Legal Defeasibility in Context and the Emergence of Substantial Indefeasibility, in ESSAYS ON LEGAL DEFEASIBILITY (Jordi Ferrer & Giovanni B. Ratti eds., forthcoming 2010) (manuscript at 22-26, on file with the New York University Law Review) (discussing retroactive application of new rules in context of post-conviction habeas proceedings).
274. See Jill E. Fisch, the Implications of Transition Theory for Stare Decisis, 13 J. CONTEMP. LEGAL ISSUES 93, 97-105 (2003) (describing common law rules regarding stare decisis).
275. See id. at 105-106 ("[A] merit-based analysis appears insensitive to the values inherent in the system of stare decisis.").
276. See, e.g., Neil K. Komesar, Taking Institutions Seriously: Introduction to a Strategy for Constitutional Analysis, 51 U. CHI. L. REV. 366, 371-372 (1984) (describing courts' limited ability to regulate effectively due to information deficit and lack of control over agenda).
277. For an overview of the theory and structure of independent agencies, see generally Marshall J. Breger & Gary J. Edles, Established by Practice: the Theory and Operation of Independent Federal Agencies, 52 ADMIN. L. REV. 1111, 1135-1163 (2000).
278. See, e.g., Geoffrey P. Miller, the Debate over Independent Agencies in Light of Empirical Evidence, 1988 DUKE L.J. 215, 218 (noting that independent agencies are more shielded from executive branch influence than are traditional executive branch agencies). While administrators of independent agencies do not enjoy life tenure, still they enjoy some degree of independence by virtue of their extended terms in office and limits on their removability.
279. Cf. Lisa Schultz Bressman & Robert B. Thompson, the Future of Agency Independence (Vanderbilt Univ. Law Sch. Pub. Law & Legal Theory Working Paper No. 10-01, Vanderbilt Univ. Law Sch. Law & Econ. Working Paper No. 10-102, 2010), available at http://ssrn.com/abstract=1546103 (arguing that rise of hybrid independent-executive mechanisms decreases independent agency freedom from presidential influence, but noting that decreased autonomy may also productively increase accountability);
280. Nash & Pardo, supra note 193, at 1765-1769 (arguing that, notwithstanding their lack of life tenure, bankruptcy judges nonetheless enjoy considerable degree of judicial independence).
281. See Buzbee, supra note 186, at 1527 (finding that executive actors are subject to lobbying by interest groups on regulatory matters);
282. Paul R. Verkuil, the Purposes and Limits of Independent Agencies, 1988 DUKE L.J. 257, 259-260 (noting that statutory requirement of bipartisanship is designed to isolate independent regulatory agencies from political pressure).
283. For commentary questioning the extent of the independence enjoyed by independent agencies, see generally Symposium, the Independence of Independent Agen cies, 1988 DUKE L.J. 215;
284. and compare Richard L. Revesz, Specialized Courts and the Administrative Lawmaking System, 138 U. PA. L. REV. 1111, 1147-53 (1990), which argues that even specialized courts that review agency action may develop an agency bias. For discussion of protections designed to frustrate independent agency bias and to ensure political independence, see Breger & Edles, supra note 200, at 1188-1197
285. See, e.g., Richard A. Posner, the Federal Trade Commission, 37 U. CHI. L. REV. 47, 86-87 (1969) (describing intention of many FTC lawyers to use their experience as means of obtaining lucrative private sector job after public service).
286. For example, consider the use of independent commissions to recommend military base closures. See Natalie Hanlon, Military Base Closings: A Study of Government by Commission, 62 U. COLO. L. REV. 331, 333-340 (1991).
287. For discussion of independent agency accountability and autonomy as competing interests, see Breger & Edles, supra note 200, at 1198-1209.
288. For recent scholarship advocating increased reliance on independent agencies, see Bressman & Thompson, supra note 201, at 3, which argues that reliance on independent agencies may allow presidential oversight "sufficient to satisfy political interests and to serve normative values," and Roberta S. Karmel, the Controversy over Systemic Risk Regulation, BROOK. J. INT'L L. (forthcoming 2010), available at http://ssrn.com/abstract=1540691, which argues that an independent agency should regulate systemic financial risk. Recent legislative proposals have also drawn upon independent agencies as valuable institutional actors.
289. For discussion of the role of independent agencies in recent health care and global warming legislative proposals, see id. at 46-55. Note that some independent actors may be temporary (like a one-time commission to select which military bases to close), while others may be permanent (like the SEC). We advocate here a permanent agency; an agency with permanence can gather expertise over time. Cf. Adrian Vermeule, Intermittent Institutions (Harvard Law School Pub. Law & Legal Theory Working Paper Group, Paper No. 10-13, 2010), available at http://ssrn.com/ abstract=1542104 (highlighting differences between temporary and permanent governmental institutions and explaining when each type of actor might be more appropriate).
290. the type of expertise that would be relevant here is discussed infra notes 222-224 and accompanying text.
291. See, e.g., Verkuil, supra note 202, at 262-263 (noting that independent agencies develop expertise over time).
292. This depends of course on the agency's organic statute, but most independent agencies possess this type of power (and there is no reason Congress could not confer it if necessary).
293. See, e.g., Michael J. Borden, the Role of Financial Journalists in Corporate Governance, 12 FORDHAM J. CORP. & FIN. L. 311, 354-355 (2007) (noting superlative regulatory expertise of SEC).
294. Cf. Verkuil, supra note 202, at 267-272 (providing examples to show independent agencies are best used in functions that mirror appellate courts, not to administer set policies).
295. A prominent analogy to the separation of decisionmaking authority between entities for purposes of providing transition relief appears in the context of environmental risk regulation. There, "risk assessment" (the determination of whether a risk exists and its scope) is separated from "risk management" (the policy question of how to respond to the risk identified). See Jonathan Remy Nash, High-Speed Police Chases and the Constitutional Common Law of Risk Regulation (unpublished manuscript, on file with the New York University Law Review) (discussing environmental risk assessment and management). One justification for this separation is specialization: Risk assessment raises questions best addressed by experts in science, while risk management introduces questions best addressed by policy and economic experts. See id. at 7-8. Another justification is that separation of inquiry avoids the very real risk that policymakers would otherwise infect, and even overwhelm, the control of scientific experts over risk assessment. See id. at 8 (discussing how separation of risk management from risk assessment protects integrity of risk assessment). Put another way, the separation of risk management from risk assessment helps to ensure the propriety and validity of the entire process.
296. See supra Part IV.A.1 (discussing circumstances in which transition relief will be necessary).
297. We return to the question of which outside actors will be best suited to this task infra Part IV.C.3.
298. See Nash, Allocation and Uncertainty, supra note 7, at 842-843 (arguing that grandfathered rights are popular because they disguise publicly unpopular cost-benefit calculus).
299. See id. at 843 (arguing that government choice of transition relief is driven by desire to create "perception of procedural fairness"). This concern, however, seems not to have stopped Congress from literally listing the number of free sulfur dioxide allowances being allocated to coal-fired power plants under the Clean Air Act sulfur dioxide trading program. That method of explicit allocation, however, persisted only under the initial, timelimited first phase of the trading program; the broader second phase allocates allowances by formula. Nash & Revesz, Markets and Geography, supra note 151, at 584-585
300. See supra notes 21-23 and accompanying text (discussing circumstances where balance of social costs favors transition relief).
301. See supra notes 24-26 and accompanying text (noting suggestions of how transition relief may be used to incentivize socially desirable investments).
302. Michael Graetz has argued that deciding who should receive transition relief is difficult because the effects of a change in the law may have an impact beyond simply the class of people directly affected by the law. See Graetz, supra note 59, at 77-78. As an example, Graetz explains that revision of air transportation regulations might "have financial effects on the investors, consumers and employees of air carriers, airframe manufacturers, and airport operators." Id. at 78. The fact that so many classes of societal actors might be affected may make it challenging, if not impossible, to apportion limited but appropriate transition relief. Presumably, an expert agency would handle such challenges better. and if indeed the task proves to be impossible, an expert agency would be best positioned to come to that conclusion as quickly as possible.
303. See Nash, Allocation and Uncertainty, supra note 7 at 819-820 (describing reliance on regional fishery councils in development of fishing quota systems).
304. To the extent that compensation is used, the legislature or executive branch agency should set a cap on the total amount of available relief. Cf. Michael B. Gerrard, N.Y. Brownfields Program Buffeted by Legislature, Courts, N.Y. L.J., July 25, 2008, at 5 (describing how, where brownfields cleanup program authorized tax credits far in excess of actual cleanup costs, New York State's Department of Environmental Conservation "began making it difficult for sites to enter" program in order "[t]o guard the state's treasury from this uncapped exposure").
305. In some sense, the use of an independent agency to decide these questions allows for retroactive effect without what Jacob Gersen and Eric Posner describe as the downsides of "Delay Rules," where retroactive legislation is too easily accomplished. Gersen and Posner explain that Delay Rules offer the benefit of allowing one session of the legislature to enact general legislation while deferring, and delegating to future legislators, specific actions. See Gersen & Posner, supra note 1, at 548. Gersen and Posner explain: Delay Rules facilitate monitoring of agents by the public and reduce the relative influence of interest groups over legislation. Delay allows slow and diffuse public attention to mobilize, reducing the advantage of well-organized groups in the legislative process. However, public attention is often short-lived. Once public attention wanes, private interests can lobby again . . . . Retroactivity, therefore, allows actors to evade some timing rules. The bias against retroactivity may support the democracy-enhancing facets of Delay Rules on the legislative process. Id. at 583 (citations omitted). Reliance upon independent agencies that are less subject to lobbying may allow for greater flexibility in having the government act retroactively without the attendant loss of benefits from Delay Rules that Gersen and Posner identify.
306. See supra note 204 and accompanying text (discussing base closures). For discussion of the effective use of ad hoc commissions to address politically challenging issues- including base closures-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).
307. See supra notes 152-158 and accompanying text (discussing transition issues that transcend subject matter areas).
308. Cf. S. REP. NO.97-275, at 6 (1982), as reprinted in 1982 U.S.C.C.A.N. 11, 16 (noting, with respect to creation of U.S. Court of Appeals for the Federal Circuit, that "the subject matter of the new court will be sufficiently mixed to prevent any special interest from dominating it").
309. For discussion and criticism of this approach, see Logue, supra note 7, at 1176-1180
310. Id. at 1179-1180 Accepting this impossibility, Logue goes on to propose 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. Id. at 1180.
311. Cf. Deborah R. Hensler, A Glass Half Full, a Glass Half Empty: the Use of Alternative Dispute Resolution in Mass Personal Injury Litigation, 73 TEX. L. REV. 1587, 1615-18, 1623-1626 (1995) (citing examples of alternative dispute resolution to allocate limited Dalkon Shield- and asbestos-related injuries, and advocating greater use of such systems in mass tort litigation).
312. Cf. William W. Buzbee, Recognizing the Regulatory Commons: A Theory of Regulatory Gaps, 89 IOWA L. REV. 1, 17-36 (highlighting that assumption of single government regulator is incorrect and noting that multiplicity of potential regulators may impose costs).