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Rules with Discretion and Local Information

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  • Bowen, T. Renee

    (Stanford University)

  • Kreps, David M.

    (Stanford University)

  • Skrzypacz, Andrzej

    (Stanford University)

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 tell whether the information was used correctly. Instead, actions may need to conform to simple and widely verifiable rules. We study when discretion in the form of permitted exceptions to the simple rule can be permitted, 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, finding that the latter is, in general, useful in a wider variety of circumstances.

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Bibliographic Info

Paper provided by Stanford University, Graduate School of Business in its series Research Papers with number 2117.

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Date of creation: Aug 2012
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Handle: RePEc:ecl:stabus:2117

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  1. Kandori, Michihiro, 1992. "Social Norms and Community Enforcement," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 63-80, January.
  2. 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.
  3. Ellison, Glenn, 1994. "Cooperation in the Prisoner's Dilemma with Anonymous Random Matching," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 567-88, July.
  4. 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.
  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.
  6. Hugo A. Hopenhayn & Christine Hauser, 2004. "Trading favors: optimal exchange and forgiveness," 2004 Meeting Papers 125, Society for Economic Dynamics.
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