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A Model of the Optimal Complexity of Rules

  • Louis Kaplow

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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File URL: http://www.nber.org/papers/w3958.pdf
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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
Date of revision:
Publication status: published as Journal of Law, Economics and Organization, vol. 11, no. 1, pp. 150-163(April 1995).
Handle: RePEc:nbr:nberwo:3958
Note: LE
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  1. Robert Townsend, 1979. "Optimal contracts and competitive markets with costly state verification," Staff Report 45, Federal Reserve Bank of Minneapolis.
  2. Border, Kim C & Sobel, Joel, 1987. "Samurai Accountant: A Theory of Auditing and Plunder," Review of Economic Studies, Wiley Blackwell, vol. 54(4), pages 525-40, October.
  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, vol. 6(1), pages 93-128, Spring.
  4. 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.
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