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Steven M. Shavell, On Optimal Legal Change, Past Behavior, and Grandfathering, 37 J. Legal Stud. 37 (2008).

Abstract: When is it socially advantageous for legal rules to be changed in the light of altered circumstances? In answering this basic question here, a simple point is developed-that past compliance with rules tends to reduce the social advantages of change. The reasons are twofold: adjusting to a new legal rule involves costs, and the social benefits of change are only in addition to those of past compliance. The general implications are that legal rules should be more stable than would be appropriate were the relevance of past behavior not recognized and that grandfathering, namely, permitting noncompliance, is sometimes desirable. These points have broad relevance, often explaining what we observe but also indicating possibilities for reform, such as in the regulation of pollution. The analysis is related to the conventional reliance-based justification for the stability of the law, the literature on legal transitions, and economic writing on optimal legal standards.