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N Problems Require N Instruments


Gerrit De Geest


Washington University in Saint Louis - School of Law

June 7, 2012

Washington University in St. Louis Legal Studies Research Paper No. 12-05-20

Abstract:     
Eric Posner (2003) has argued that (contract) law and economics has failed to produce clear policy recommendations because its theoretical results are usually inconclusive and empirical data on the parameters are usually unavailable. Legislators and courts, however, cannot wait to make decisions until scholarship is conclusive; hence the question arises which policy conclusions are the ‘least irrational’ under those circumstances.

I argue that, when scholarship is inconclusive, one principle that should guide legislators and courts is that the number of instruments should equal the number of problems. Using a single instrument for two or more problems leads to ineffectiveness (especially if the relative social importance of the problems is unequal) and indeterminacy (because setting the compromise optimally requires empirical information on the relative social importance of the problems, which is hard to acquire). I therefore argue that legislators and courts should only deviate from this principle when they have serious indications that the underlying problems are nearly completely nonverifiable and in addition roughly equal in terms of social importance.

I show that when these guidelines are applied, the theoretical indeterminacy surrounding optimal remedies for contract breach—the poster child of indeterminacy— largely disappears.

Number of Pages in PDF File: 37

Keywords: Optimal remedies, contract breach, compromise instruments, lawmaking

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Date posted: June 7, 2012 ; Last revised: February 20, 2013

Suggested Citation

De Geest, Gerrit, N Problems Require N Instruments (June 7, 2012). Washington University in St. Louis Legal Studies Research Paper No. 12-05-20. Available at SSRN: http://ssrn.com/abstract=2079747 or http://dx.doi.org/10.2139/ssrn.2079747

Contact Information

Gerrit De Geest (Contact Author)
Washington University in Saint Louis - School of Law ( email )
Campus Box 1120
St. Louis, MO 63130
United States
314-398-4941 (Phone)
HOME PAGE: http://www,degeest.wustl..edu
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