Rules, Standards and Detection

66 Pages Posted: 29 Jan 2018 Last revised: 12 Jun 2018

See all articles by David Hasen

David Hasen

University of Florida Levin College of Law

Date Written: January 20, 2018

Abstract

Regulators can adjust penalties to compensate for incomplete monitoring of rule-governed regulated parties, but these adjustments often are unavailable when regulated parties are subject to legal standards. Incomplete monitoring consequently invites greater noncompliance under standards than under rules. A similar logic may apply to the use of complicated rules instead of simple ones.

This paper develops a model that clarifies some of the specific tradeoffs that regulators face in designing standards regimes under incomplete monitoring. The model also permits estimation of the extent to which suboptimal compliance due to incomplete monitoring is likely to result in deadweight loss. Generally speaking, where compliance is inexpensive, an increase in detection rates yields greater benefits than where compliance is costly. In costly compliance cases, greater benefit tends to come from shifting to a more rule-like norm.

Keywords: compliance, regulation, efficiency

JEL Classification: H10, H23, K23, L51

Suggested Citation

Hasen, David, Rules, Standards and Detection (January 20, 2018). Available at SSRN: https://ssrn.com/abstract=3105941 or http://dx.doi.org/10.2139/ssrn.3105941

David Hasen (Contact Author)

University of Florida Levin College of Law ( email )

P.O. Box 117625
Gainesville, FL 32611-7625
United States

HOME PAGE: http://https://www.law.ufl.edu/faculty/david-hasen

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