Legal Uncertainty as a Welfare Enhancing Screen

28 Pages Posted: 13 Dec 2016

See all articles by Matthias Lang

Matthias Lang

Ludwig Maximilian University of Munich (LMU); CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 3 versions of this paper

Date Written: November 08, 2016

Abstract

Consider legal uncertainty as uncertainty about the legality of a specific action. In particular, suppose that the threshold of legality is uncertain. I show that this legal uncertainty raises welfare. Legal uncertainty changes deterrence in opposite directions. The probability of conviction increases for firms below the threshold, while the probability of conviction decreases for firms above the threshold. Hence, legal uncertainty acts as a welfare enhancing screen and increases welfare. Legal uncertainty discourages some actions with low private benefits, while it encourages other actions with high private benefits.

Keywords: enforcement, deterrence, legal uncertainty, regulation, asymmetric information, incomplete contracts

JEL Classification: D800, K200, K400, L500

Suggested Citation

Lang, Matthias, Legal Uncertainty as a Welfare Enhancing Screen (November 08, 2016). CESifo Working Paper Series No. 6164, Available at SSRN: https://ssrn.com/abstract=2884596 or http://dx.doi.org/10.2139/ssrn.2884596

Matthias Lang (Contact Author)

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
89
Abstract Views
592
rank
146,281
PlumX Metrics