Allocation and Uncertainty: Strategic Responses to Environmental Grandfathering

Abstract

This Article addresses puzzles relating to the allocation of grandfathering rights. First, when a government wishes to distribute grandfathering rights to societal actors who currently engage in a behavior that will soon be restricted, the societal actors may engage in inefficient behavior to secure additional property rights. To minimize that incentive, the government may employ a “retrospective allocation” based on activities that predate the limitations on resource access. Legal uncertainty makes it more difficult for societal actors to modify their behavior. Such systems have become increasingly common in the context of environmental and natural resource regulation.

Second, assuming societal actors act in anticipation of retrospective allocation, the criteria for winning allocations must change over time for retrospective allocation to maintain effectiveness on an ongoing basis.

Third, why should the government employ grandfathering, yet also wish to cabin the ability of societal actors to engage in rent-seeking under grandfathering? Even under retrospective allocation, the legislature still can reward rent-seeking. Strong community norms also may convince the legislature to devolve authority to a regulatory body that is not beholden to any interest group.

The arguments here are important for several reasons. First, the Article illuminates the growing, yet under-examined, “retrospective allocation” device. Second, retrospective allocation provides an important caveat to the law and economics literature presumption against legal transition relief. Third, retrospective allocation may apply beyond the allocation of grandfathered rights to natural resource access, such as the granting of amnesty for illegal immigrants, the assessment of academic actors and institutions, and the measurement of countries' conformity with international legal treaties.

Keywords: Environmental law, Distributional justice, Grandfathering, Transition relief, Natural resources

JEL Classification: K00, K23, K32