Volume 13: Issue 1, 2003

Legal Transitions: Is There an Ideal Way to Deal With the Non-Ideal World of Legal Change?

Introduction to the Conference on Legal Transitions

Larry Alexander*

Perhaps the best way to introduce this splendid collection of articles— produced by the participants at the conference on Legal Transitions: Is There an Ideal Way to Deal with the Non-Ideal World of Legal Change?, which was held at the University of San Diego on October 25 and 26, 2002, and jointly sponsored by the University of San Diego School of Law's Institute for Law & Philosophy and its Tax Faculty—is to quote the topic description that Professor Lester Snyder and I sent the participants in our initial invitation to the conference:

Most normative philosophers focus on ideal consequences or ideal side-constraints. Almost no one focuses on the normative problems of what to do when others, particularly lawmakers, have put in place non-ideal laws and institutions around which people have planned their lives. Thoroughgoing consequentialists of the “past history is immaterial, future patterns are all that matters” variety, of course, do have an answer: “From this point forward, produce the ideal pattern.” But that answer, aside from being unsatisfying to nonconsequentialists, is quite unhelpful by itself, for it assumes away the problems of inducing desirable reliance, avoiding moral hazard, and other difficulties of abandoning current laws and institutional arrangements.

Legal theorists, on the other hand, have made some attempts to deal with the problems of legal transitions, but they have handicapped by two problems. First, they have tended to approach legal transitions in a balkanized way, with tax scholars focusing solely on changes in the tax code, constitutional scholars focusing on takings, impairments of contracts, and retroactive legislation, and (a few) jurisprudents focusing on how to entrench rules (and thereby obtain the benefits of “ruleness”) without over-entrenching them in case they're pernicious.

Second, legal theorists have tended to bring to bear on the problem of legal transitions either the tools of welfare economics or public choice theory, but rarely—Epstein and Michelman being notable exceptions—an explicit background normative philosophy.

The purpose of the conference is to bring together a variety of normative philosophers—consequentialists and deontologists—and hitherto balkanized legal theorists of legal transitions in order to see if the variety of perspectives can usefully inform scholars, legislators, and courts on how to approach this enormously important and far-reaching legal and moral problem.

If the reader is interested in an overview of the articles in this symposium, this Introduction is not the place to look. Rather he or she should turn to Chris Wonnell's marvelous post-conference summary of those articles. Chris's summary is tendentious, of course, but quite fairly presents the central themes of the articles.

Here, I shall add just a few remarks on the topic. Legal change is, of course, ubiquitous, whether in the form of changes in statutory law and administrative regulations, the overruling of precedents, the undertaking by government of new projects that affect the value of others' enterprises, governmental decisions regarding whether to honor government's contracts, the exercise of eminent domain, or constitutional change. In every case of legal change, presumably government believes the change will produce a net gain in the public's well-being. That belief may, of course, be mistaken; and some commentators hold a moderately strong presumption against legal change being net beneficial. When legal change is beneficial, however, the question remains regarding what, if anything, should be done about the distribution of its costs and benefits. Should the losers from change be compensated by government, or should they rely only on private insurance to the extent it's available? Should the winners be taxed to pay the losers? (One disanalogy between governmental insurance against loss from change and private insurance is that government has the ability to tax winners, whereas private insurers cannot saddle winners with premiums.)

A lot of discussion of when government should and should not pay those who bear the costs of legal change focuses on incentive effects. If government insures us against the costs of its legal changes, will we undertake projects that are not cost-benefit justified in light of the probabilities of legal change? In other words, does government compensation for the costs of legal change create a moral hazard problem?

Relevant to this issue—and to a great many issues—is the distinction between risk, in the actuarial sense, and uncertainty. Risk represents known probabilities of outcomes and can be rationally weighed in prudential or moral decisionmaking, including decisionmaking about whether and how much to insure (and what premiums to charge). Uncertainty, on the other hand, represents ignorance of the distribution and incidence of various outcomes and confounds prudential and moral decisionmaking. And even if one who is uncertain could, by undertaking costly research, convert his uncertainty into risk, he will be uncertain about what resources to spend in so doing. No one can rationally evaluate information he does not yet have.

I would submit, for theoretical reasons that I cannot adequately defend in a brief introduction, that the prospect of future legal changes falls principally on the uncertainty side of the risk/certainty divide. We cannot predict most legal changes with actuarial confidence. If we could, then that would imply that government could predict its own future acts with actuarial accuracy. And if that were true, it would then appear to be the case that those predictions could be incorporated as contingencies within current law. A legal “change” would, therefore, be no change at all.

Along with the incentives problem—and related to it—is the deep problem in liberal theory of luck versus choice. When should legal changes be treated as brute luck—that is, like a random lightning strike—insofar as those who are hurt and those who are benefited are concerned, and when should such changes be treated as chosen consequences for which the choosers must (may) take responsibility and bear the costs (reap the benefits)? Of course, people are compelled to make certain choices in order to be prudent and morally upright actors. So the mere fact that someone chooses to occupy a house does not look like the kind of choice that should render the government's decision to take that house in order to build a road a matter of “choice” rather than a piece of brute bad luck. On the other hand, if someone could buy any of several houses, but purchases the one that he knows is at high risk of being taken by the government, the taking looks less like brute bad luck and more like an outcome for which the chooser should bear the cost.

In general, choices that are prudent or morally praiseworthy look like better candidates for the brute luck category when they turn out badly in light of legal changes than do choices that are imprudent or immoral. The latter choices look like pure gambles that ex ante are expected to turn out badly. The former choices look eligible for socialization of their risks. Ex ante, given their expected outcomes—the probability distribution of various outcomes and the benefits and costs of those outcomes—they are socially rational choices, and society would be rational to agree to socialize their expected gains and losses. Of course, if someone who loses from legal changes wants us collectively to bail him out, he should stand ready to have his gains as well as his losses subject to socialization . No one can ask the government to insure his enterprise against the risks of legal changes if he does not stand ready to share windfalls from legal changes. If he wishes to keep his windfalls, then he is undertaking a gamble and should bear its downside risk.

Finally, the notion of legal change to which these issues of moral hazard, risk, uncertainty, luck, and choice are relevant is a quite capacious one. For example, it includes questions about the desirability of entrenching legal rules against change. One might conclude that precedents should be changed whenever a court concludes that a different rule would on balance be preferable. Alternatively, one might conclude that precedents should be overruled only when they are quite seriously nonoptimal. Or one might conclude that precedents should never be overruled. If government were prepared to compensate everyone who loses from changes in precedent—adjusting for problems of moral hazard and imprudent or immoral choices—then there would be less reason to entrench precedents than if government were not prepared to compensate.

The reader will find all of these themes—and several more—raised and analyzed in the articles that follow. These articles may not be the last words on legal transitions, but any serious treatment of the topic will from this point on be forced to grapple with them. Read on and enjoy!

*Warren Distinguished Professor, University of San Diego School of Law. Professor Lester Snyder and I wish to thank the University of San Diego's Academic Initiative Committee and Dean Daniel Rodriguez of the School of Law for their generous support of the conference and its publication in this journal.