Uncertainty, Complexity, and Regulatory Design
47 Pages Posted: 23 Jun 2016 Last revised: 28 Jul 2016
Date Written: June 1, 2016
This Article develops an analytic framework for understanding the role of uncertainty in regulatory design. It begins by differentiating between three types of uncertainty: legal uncertainty, factual uncertainty, and uncertainty about the application of law to fact. This framework highlights the pervasiveness of factual uncertainty and law-fact uncertainty in daily affairs. Viewed through this framework, legal uncertainty is less problematic than it is typically thought to be.
The Article then focuses on legal uncertainty, examining it from two perspectives: the relationship between rules and standards, and the relationship between simplicity and complexity. It suggests that there are fundamental limits on the amount of certainty in any regulatory system. These include limits of internal consistency, limits created by the pressure for justice in the individual case, and limits created by the tendency of additional complexity — past a certain point — to decrease, rather than increase, the certainty of legal requirements.
Before concluding, the Article sets out four propositions about the relationship between legal uncertainty and regulatory design. First, pockets of legal uncertainty are often a desirable characteristic of regulatory systems. Second, in any particular regulatory field, large swings over time between high levels of certainty and uncertainty are likely to be less desirable than a consistent, moderate level of legal uncertainty. Third, arguments for legal certainty are rarely distributionally neutral and are often window dressing for what are fundamentally distributional arguments. Fourth, uncertainty about the content of future legal requirements is qualitatively different from uncertainty about the application of existing legal requirements. It is beyond the scope of this Article to explore these propositions in detail. However, the ability to identify them suggests the value of having a solid analytic framework for understanding the role of uncertainty in regulatory design.
Keywords: Uncertainty, Complexity, Regulation, Regulatory Design, Rules, Standards, Law, Fact
JEL Classification: A12, D8, D80, D81, D83, D89, H1, H10, H11, K2, K20, K23, K40
Suggested Citation: Suggested Citation