Complexity-Robust Regulation

Abstract

Complex systems are characterized by complex interactions among agents and emergence of complex phenomena that are more or less surprising ex-ante. These emergent phenomena entail harm to individuals and pose risks to the system as such — so-called systemic risk. Complexity poses challenges to regulation. Complex interaction is a challenge for determining causal responsibility and an adequate allocation of legal liabilities, and surprise is a challenge for designing ex-ante regulations to avoid emergent phenomena when they are harmful. This paper explores principles for complexity-robust regulations that proactively can address complexity. Complexity-robust regulation entails complexity-robust legal duties, complexity-robust liability for joint activity, complexity-robust causal concepts, and complexity-robust enforcement. The principles of complexity-robust regulation outlined in this paper can be used in combination and independently.

Keywords: Complexity, Complex Systems, Cryptocurrency Systems, Financial Systems, Liability, Regulation

JEL Classification: G18, K20, L50