Real Options Theory for Law Makers

Recherches Economiques de Louvain - Louvain Economic Review, Vol. 75, No. 1, 2009

27 Pages Posted: 3 Mar 2008 Last revised: 9 Jul 2010

See all articles by Bruno Deffains

Bruno Deffains

Université Paris II - Panthéon-Assas; Institut Universitaire de France

Marie Obidzinski

Université Paris II - Panthéon-Assas

Date Written: December 1, 2007

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.

Keywords: Degree of precision, flexibility, obsolescence, rulemaking

JEL Classification: C61, G12, K00, K40

Suggested Citation

Deffains, Bruno and Obidzinski, Marie, Real Options Theory for Law Makers (December 1, 2007). Recherches Economiques de Louvain - Louvain Economic Review, Vol. 75, No. 1, 2009, Available at SSRN: https://ssrn.com/abstract=1099487 or http://dx.doi.org/10.2139/ssrn.1099487

Bruno Deffains (Contact Author)

Université Paris II - Panthéon-Assas ( email )

12 place du Pantheon
Paris cedex 05, 75005
France

Institut Universitaire de France ( email )

103, bld Saint-Michel
75005 Paris
France

Marie Obidzinski

Université Paris II - Panthéon-Assas ( email )

12 place du Pantheon
Paris cedex 06, 75231
France

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