A Theory of Mandatory Rules: Typology, Policy, and Design

49 Pages Posted: 17 Jul 2019 Last revised: 17 Feb 2020

See all articles by Eyal Zamir

Eyal Zamir

Hebrew University of Jerusalem - Faculty of Law

Ian Ayres

Yale University - Yale Law School; Yale University - Yale School of Management

Date Written: January 16, 2020

Abstract

Market regulation has traditionally focused on disclosure duties, and in recent years much attention has been given to nudges. However, there are increasing doubts about the effectiveness of disclosures and nudges. In response, some conclude that regulation should be abandoned altogether. An alternative conclusion is that there is a need for more serious and systematic consideration of the use of mandatory regulation of the content of transactions. This Article focuses on such measures.

While much has been written about the design of default rules, disclosures, and nudges, relatively little scholarly attention has been given to the questions of when to deploy and how to design mandatory rules. To fill this gap, the Article first offers a typology of procedural and substantive mandatory rules, maps the arguments for and against the use of mandatory rules, and describes their current use. Next, the Article offers a systematic analysis of ten choices involved in the design of mandatory rules, concerning who imposes the mandate, the scope of mandate, the possible interaction with procedural mandatory rule, and the enforcement of the mandate. This discussion yields new insights. Among other things, once it is realized that the choice is not dichotomous—i.e. substantive mandatory rules, yes or no—but rather covers a huge variety of such rules which differ in numerous respects, blanket opposition to mandatory rules ceases to be tenable. Thus, the inquiry into the question of how to regulate the content of transactions sheds new light on the question of whether to do so.

Keywords: contract law, mandatory rules, disclosure duties, nudges, market failures, regulation, framing, paternalism

JEL Classification: D03, D11, D18, D6, D82, K12, K2

Suggested Citation

Zamir, Eyal and Ayres, Ian, A Theory of Mandatory Rules: Typology, Policy, and Design (January 16, 2020). Texas Law Review, Forthcoming, Hebrew University of Jerusalem Legal Research Paper No. 19-12, Available at SSRN: https://ssrn.com/abstract=3420179 or http://dx.doi.org/10.2139/ssrn.3420179

Eyal Zamir (Contact Author)

Hebrew University of Jerusalem - Faculty of Law ( email )

Mount Scopus
Mount Scopus, IL 91905
Israel
+972 2 582 3845 (Phone)
+972 2 582 9002 (Fax)

Ian Ayres

Yale University - Yale Law School ( email )

P.O. Box 208215
New Haven, CT 06520-8215
United States
203-432-7101 (Phone)
203-432-2592 (Fax)

Yale University - Yale School of Management

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

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