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A Model of the Optimal Complexity of Rules

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  • Louis Kaplow

Abstract

Rules often are complex in order to distinguish different types of behavior that may have different consequences. Greater complexity thus allows better control of behavior. But individuals may need to incur costs ex ante to determine how more complex rules apply to their contemplated conduct. Because of such costs, some individuals will choose not to learn complex rules. Also, applying more complex rules ex post to determine applicable rewards or penalties is costly. This article models the effects of complexity on individuals' decisions to acquire information, choices about whether to act, and reports of their actions to an enforcement authority. It considers how optimal sanctions depend on the complexity of rules and determines when more complex rules improve welfare.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3958.

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Date of creation: Jan 1992
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Publication status: published as Journal of Law, Economics and Organization, vol. 11, no. 1, pp. 150-163(April 1995).
Handle: RePEc:nbr:nberwo:3958

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  1. Robert Townsend, 1979. "Optimal contracts and competitive markets with costly state verification," Staff Report, Federal Reserve Bank of Minneapolis 45, Federal Reserve Bank of Minneapolis.
  2. Isaac Ehrlich & Richard A. Posner, 1974. "An Economic Analysis of Legal Rulemaking," The Journal of Legal Studies, University of Chicago Press, University of Chicago Press, vol. 3(1), pages 257-286, January.
  3. Kaplow, Louis, 1990. "Optimal Deterrence, Uninformed Individuals, and Acquiring Information about Whether Acts Are Subject to Sanctions," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 6(1), pages 93-128, Spring.
  4. Border, Kim C & Sobel, Joel, 1987. "Samurai Accountant: A Theory of Auditing and Plunder," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 54(4), pages 525-40, October.
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Cited by:
  1. Garoupa, Nuno & Obidzinski, Marie, 2006. "The Scope of Punishment: An Economic Theory of Harm-Based vs. Act-Based Sanctions," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5899, C.E.P.R. Discussion Papers.
  2. Walls, Margaret & Calcott, Paul, 2002. "Waste, Recycling, and "Design for Environment": Roles for Markets and Policy Instruments," Discussion Papers, Resources For the Future dp-00-30-rev, Resources For the Future.
  3. Ram Singh, 2001. "Efficient Liability Rules When Courts Make Errors in Estimation of the Harm : Complete Characterization," Working papers 99, Centre for Development Economics, Delhi School of Economics.
  4. Ram Singh, 2001. "Effects of Courts' Errors on Efficiency of Liability Rules: When Individuals are Imperfectly Informed," Working papers 97, Centre for Development Economics, Delhi School of Economics.
  5. Numa Garoupa, 1999. "Optimal Law Enforcement with Dissemination of Information," European Journal of Law and Economics, Springer, Springer, vol. 7(3), pages 183-196, May.

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