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Real Options Theory for Law Makers

  • Bruno Deffains
  • Marie Obidzinski
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    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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    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
    Contact details of provider: Web page: http://www.cairn.info/revue-recherches-economiques-de-louvain.htm

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