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Real Options Theory for Law Makers

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Author Info
Bruno Deffains
Marie Obidzinski
Abstract

Abstract The formulation of legal rules is a challenging issue for lawmakers. Trade-offs are inevitable between providing more guidance by specific rules and enlarging the scope by general rules. Using real options theory we show that the degree of precision should be considered as a degree of flexibility which increases the value of the text. Thus, we derive a normative principle for a draftsman to choose between rules versus standards and to decide when the law should be enacted. In highly innovating environments, delaying the enactment allows lawmakers to obtain more information. Therefore, the lower the degree of precision of the law, the shorter the delay. JEL Classification ? C61, G12, K00, K40.

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Publisher Info
Article provided by De Boeck Université in its journal Recherches économiques de Louvain.

Volume (Year): 75 (2009)
Issue (Month): 1 ()
Pages: 93-117
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Handle: RePEc:cai:reldbu:rel_751_0093

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Related research
Keywords: degree of precision; exibility; obsolescence; rulemaking;

Find related papers by JEL classification:
C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
K00 - Law and Economics - - General - - - General (including Data Sources and Description)
K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General

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This page was last updated on 2009-12-4.

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