model, before a statute is enacted Statute 0 is operating. If Statute 0 is
replaced by another statute, for example Statute X, then two things happen.
The operating costs and benefits of Statute 0 (normally) cease. The operating
costs and benefits of Statute X commence.
Changeover costs and benefits occur when there is a change of law. This
could be a change from Statute 0 to Statute X, or from Statute X (once it was
enacted) to Statute Y. Changeover costs and benefits have three components.
(a) Benefits. The major benefit that a statute yields is when it is operating.
There may, however, be some changeover benefits as one statute is dismantled
and another erected. For example there may be premises and equipment that is
no longer needed and is now freed for other use. (b) Economic Costs. There
are three economic costs –
transaction costs, adjustment costs and
predictability costs. (c) Symbolic Costs. These consist of equality costs, and
in the nature of things apply more to judge made law than to statutes.
These components of net benefit are the same regardless of whether we are
considering a statute made by a legislature, a common law rule
made by a
court or the interpretation of a statute or common law rule by a court.
However, the extent of these costs and benefits varies depending on
circumstances. For example, a minor amendment to a statute will typically
cause low costs and benefits, whereas a major codification of an area of law
will have far greater costs and benefits. Some of these possibilities are
illustrated in the discussion below.
Restating the Net Benefit Rule
In simple form the net benefit rule requires that society enact the
statute that
yields the highest net benefit. However, the forgoing discussion has indicated
that the costs and benefits of a statute are of two kinds, changeover costs and
benefits and operating costs and benefits. In the light of this it is necessary to
restate the net benefit rule.
To illustrate this restatement we will refer to a legislature passing a statute, but
the reasoning applied equally to making common law and interpreting law.
Assume for the illustration that the statute currently operating is
Statute X.
However, doubts about the efficacy have prompted ideas to repeal Statute X
and replace it with a better statute, which we label Statute Y.
In its simple application the net benefit rule measures the net benefit of a
statute as it operates. As
is clear, this net benefit consists of the excess of
operating benefits over operating costs. Now if the government is considering
replacing Statute X with Statute Y, the prime question is whether Statute Y will
procure a higher operating net benefit than Statute X.
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