Legal Uncertainty as a Welfare Enhancing Screen

Matthias Lang

No 2014_17, Discussion Paper Series of the Max Planck Institute for Research on Collective Goods from Max Planck Institute for Research on Collective Goods

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 (search for similar items in EconPapers)
JEL-codes: D8 K2 K4 L5 (search for similar items in EconPapers)
Date: 2014-11, Revised 2016-10
New Economics Papers: this item is included in nep-law and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Legal uncertainty as a welfare enhancing screen (2017)
Working Paper: Legal Uncertainty as a Welfare Enhancing Screen (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:mpg:wpaper:2014_17

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