OPTIMAL TRANSITION POLICY: REPLACING HORIZONTAL EQUITY WITH AN EX ANTE INCENTIVES PERSPECTIVE.

摘要

An important but infrequently examined source of risk arises from uncertainty concerning future goverment policy. Although tax reform is most often cited, all changes in government policy (legislative enactments, judicial decisions, administrative rulings, budgetary shifts) impose gains and losses on those who previously had taken actions with long-term consequences. Transition policy concerns whether, to what extent, and in what manner the impacts of policy change upon preexisting investments should be compensated or otherwise mitigated, as through grandfather provisions and delayed implementation.;The remainder of the study evaluates transition policy by examining the effect of anticipated transition relief on ex ante incentives and risk bearing. The problem of uncertainty concerning future government policy is modeled in a manner that makes it analogous to concerns raised by other sources of uncertainty. Market arrangements for risk, such as insurance, are subject to moral hazard. The model of government transition relief suggests that it operates as a second level of insurance. But such risk mitigation generally lacks efficiency-enhancing attributes of market arrangements. The most general result is that even when moral hazard most inhibits the efficiency of market provisions for risk, the additional level of insurance provided by transition policy creates a more complex moral hazard problem that produces a less efficient outcome. Thus, the intuition that government mitigation of marketplace uncertainties tends to be inefficient on incentive grounds is demonstrated to apply to government transition policy. Qualifications to the basic model suggest contexts in which some forms of transition relief might be efficient.;The investigation first considers the principles appropriate in evaluating transition policy. It criticizes the increasing role given to the concept of horizontal equity (the command that equals be treated equally) by demonstrating that past attempts to implement the concept are inconsistent with its supposed foundations. Moreover, examination of horizontal equity raises serious doubts as to whether any alternative interpretation reasonably consistent with common understanding of the concept can be justified. The discussion suggests that the intuitions motivating concern for horizontal equity might arise from its congruence with the dictates of conventional analysis of risk aversion.