The 'Principles' Paradox
Steven L. Schwarcz
Duke University School of Law
Duke Law School Legal Studies Paper No. 205
European Business Organization Law Review, Vol. 10, p.175, 2009; Symposium Issue: University of Cambridge Conference on Principles v. Rules in Financial Regulation, Winter 2008
This essay, prepared for a University of Cambridge conference on Principles Versus Rules in Financial Regulation, posits a new issue in that debate. Although principles-based regulation is thought to more closely achieve normative goals than rules, the extent to which that occurs can depend on the enforcement regime. A person who is subject to unpredictable liability is likely to hew to the most conservative interpretation of the principle, especially where that person would be a potential deep pocket in litigation. This creates a paradox: Unless protected by a regime enabling one in good faith to exercise judgment without fear of liability, such a person will effectively act as if subject to a rule and, even worse, an unintended rule.
Number of Pages in PDF File: 10
Date posted: April 18, 2008 ; Last revised: December 17, 2009