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Rules with Discretion and Local Information

Author

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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.

Suggested Citation

  • Bowen, T. Renee & Kreps, David M. & Skrzypacz, Andrzej, 2012. "Rules with Discretion and Local Information," Research Papers 2117, Stanford University, Graduate School of Business.
  • Handle: RePEc:ecl:stabus:2117
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    References listed on IDEAS

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    1. Glenn Ellison, 1994. "Cooperation in the Prisoner's Dilemma with Anonymous Random Matching," Review of Economic Studies, Oxford University Press, vol. 61(3), pages 567-588.
    2. Wolitzky, Alexander, 2015. "Communication with tokens in repeated games on networks," Theoretical Economics, Econometric Society, vol. 10(1), January.
    3. 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.
    4. Hugo A. Hopenhayn & Christine Hauser, 2004. "Trading favors: optimal exchange and forgiveness," 2004 Meeting Papers 125, Society for Economic Dynamics.
    5. 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.
    6. Michihiro Kandori, 1992. "Social Norms and Community Enforcement," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 63-80.
    7. 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.
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    Cited by:

    1. Piotr Wajszczyk, 2016. "Informal Institutions in the Corporate Governance System in Russia," Annales. Ethics in Economic Life, University of Lodz, Faculty of Economics and Sociology, vol. 19(4), pages 113-121, December.
    2. repec:eee:jetheo:v:169:y:2017:i:c:p:170-217 is not listed on IDEAS

    More about this item

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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