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Law Enforcement under Incomplete Law: Theory and Evidence from Financial Market Regulation

  • Pistor, Katharina
  • Xu, Cheng-Gang
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    This Paper studies the design of lawmaking and law enforcement institutions based on the premise that law is inherently incomplete. Under incomplete law, law enforcement by courts may suffer from deterrence failure. As a potential remedy, a regulatory regime is introduced. The major functional difference between courts and regulators is that courts enforce law reactively, that is only once others have initiated law enforcement procedures, while regulators enforce law proactively, i.e. on their own initiative. We study optimal regime selection between a court and a regulatory regime and present evidence from the history of financial market regulation.

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    File URL: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=3788
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    Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3788.

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    Date of creation: Feb 2003
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    Handle: RePEc:cpr:ceprdp:3788
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    13. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 169.
    14. Edward L. Glaeser & Andrei Shleifer, 2001. "The Rise of the Regulatory State," Harvard Institute of Economic Research Working Papers 1934, Harvard - Institute of Economic Research.
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    17. Mookherjee, Dilip & Png, I P L, 1992. "Monitoring vis-a-vis Investigation in Enforcement of Law," American Economic Review, American Economic Association, vol. 82(3), pages 556-65, June.
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