Enforcing Rules Versus Enforcing Standards

Abstract

Comparisons between rules and standards often involve enforcement costs. According to conventional wisdom, rules are cheaper to enforce than standards. We identify an additional trade-off by exploring an inverse proposition: not enforcing a rule is costlier than not enforcing a standard. Failing to enforce a rule—not bothering to punish minor infractions—reveals a lot about the government’s enforcement costs. Regulated parties can use this information and violate law to a certain extent with impunity. Failing to enforce a standard reveals less information, and this can lead to greater compliance with the law. This result does not depend on risk aversion among regulated parties. We identify the specific characteristics of standards that yield this effect.

Keywords: rules and standards, enforcement, enforcement and learning, exceptions