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Rules with Discretion and Local Information

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  • T. Renee Bowen
  • David M. Kreps
  • Andrzej Skrzypacz

Abstract

To ensure that individual actors take certain actions, community enforcement may be required. This can present a rules-versus-discretion dilemma: it can become impossible to employ discretion based on information that is not widely held, because the wider community is unable to verify how the information was used. Instead, actions may need to conform to simple and widely verifiable rules. We study when discretion in the form of exceptions to a simple rule can be implemented, if the information is shared by the action taker and a second party, who is able to verify for the larger group that an exception is warranted. In particular, we compare protocols where the second party excuses the action taker from taking the action ex ante with protocols where the second party instead forgives a rule-breaking actor ex post. JEL Codes: C73, D82. Copyright 2013, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/qje/qjt013
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Bibliographic Info

Article provided by Oxford University Press in its journal The Quarterly Journal of Economics.

Volume (Year): 128 (2013)
Issue (Month): 3 ()
Pages: 1273-1320

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Handle: RePEc:oup:qjecon:v:128:y:2013:i:3:p:1273-1320

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  1. Hugo A. Hopenhayn & Christine Hauser, 2004. "Trading favors: optimal exchange and forgiveness," 2004 Meeting Papers 125, Society for Economic Dynamics.
  2. Daniel P. Kessler, 2011. "Evaluating the Medical Malpractice System and Options for Reform," Journal of Economic Perspectives, American Economic Association, vol. 25(2), pages 93-110, Spring.
  3. Michi Kandori, 2010. "Social Norms and Community Enforcement," Levine's Working Paper Archive 630, David K. Levine.
  4. Giovanni Maggi, 1999. "The Role of Multilateral Institutions in International Trade Cooperation," American Economic Review, American Economic Association, vol. 89(1), pages 190-214, March.
  5. Krishna, Vijay & Morgan, John, 2004. "The art of conversation: eliciting information from experts through multi-stage communication," Journal of Economic Theory, Elsevier, vol. 117(2), pages 147-179, August.
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