Real Options Theory for Law Makers
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.
Volume (Year): 75 (2009)
Issue (Month): 1 ()
|Contact details of provider:|| Web page: http://www.cairn.info/revue-recherches-economiques-de-louvain.htm|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- William M. Landes & Richard A. Posner, 1976.
"Legal Precedent: A Theoretical and Empirical Analysis,"
NBER Working Papers
0146, National Bureau of Economic Research, Inc.
- Landes, William M & Posner, Richard A, 1976. "Legal Precedent: A Theoretical and Empirical Analysis," Journal of Law and Economics, University of Chicago Press, vol. 19(2), pages 249-307, August.
- Pistor, Katharina & Xu, Cheng-Gang, 2003. "Law Enforcement under Incomplete Law: Theory and Evidence from Financial Market Regulation," CEPR Discussion Papers 3788, C.E.P.R. Discussion Papers.
- Johnston, Jason Scott, 1995. "Bargaining under Rules versus Standards," Journal of Law, Economics and Organization, Oxford University Press, vol. 11(2), pages 256-81, October.
- Merton, Robert C., 1976.
"Option pricing when underlying stock returns are discontinuous,"
Journal of Financial Economics,
Elsevier, vol. 3(1-2), pages 125-144.
- Merton, Robert C., 1975. "Option pricing when underlying stock returns are discontinuous," Working papers 787-75., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Bar-Gill Oren, 2005. "Pricing Legal Options: A Behavioral Perspective," Review of Law & Economics, De Gruyter, vol. 1(2), pages 204-240, September.
- William M. Landes & Richard A. Posner, 1975.
"The Independent Judiciary in an Interest-Group Perspective,"
NBER Working Papers
0110, National Bureau of Economic Research, Inc.
- Landes, William M & Posner, Richard A, 1975. "The Independent Judiciary in an Interest-Group Perspective," Journal of Law and Economics, University of Chicago Press, vol. 18(3), pages 875-901, December.
- George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring.
- Johnson, Herb, 1987. "Options on the Maximum or the Minimum of Several Assets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(03), pages 277-283, September.
- Paul G. Mahoney & Chris William Sanchirico, 2005. "General and Specific Legal Rules," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 161(2), pages 329-, June.
- Robert C. Merton, 1973. "Theory of Rational Option Pricing," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 141-183, Spring.
- Francesco Parisi & Vincy Fon & Nita Ghei, 2004. "The Value of Waiting in Lawmaking," European Journal of Law and Economics, Springer, vol. 18(2), pages 131-148, September.
- Robert A. Jones & Joseph M. Ostroy, 1979.
"Flexibilty and Uncertainty,"
UCLA Economics Working Papers
163, UCLA Department of Economics.
- Baker, George & Gibbons, Robert & Murphy, Kevin J, 1999. "Informal Authority in Organizations," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(1), pages 56-73, April.
- Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474, 06-2016.
- Peter-Jan Engelen, 2004. "Criminal Behavior: A Real Option Approach With an Application to Restricting Illegal Insider Trading," European Journal of Law and Economics, Springer, vol. 17(3), pages 329-352, May.
- Isaac Ehrlich & Richard A. Posner, 1974. "An Economic Analysis of Legal Rulemaking," The Journal of Legal Studies, University of Chicago Press, vol. 3(1), pages 257-286, January.
- Robert McDonald & Daniel Siegel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, Oxford University Press, vol. 101(4), pages 707-727.
- Arun S. Malik, 1990. "Avoidance, Screening and Optimum Enforcement," RAND Journal of Economics, The RAND Corporation, vol. 21(3), pages 341-353, Autumn.
When requesting a correction, please mention this item's handle: RePEc:cai:reldbu:rel_751_0093. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jean-Baptiste de Vathaire)
If references are entirely missing, you can add them using this form.