Real Options Theory for Law Makers

Bruno Deffains and Marie Obidzinski

Recherches économiques de Louvain, 2009, vol. 75, issue 1, 93-117

Abstract: Abstract The formulation of legal rules is a challenging issue for lawmakers. Trade-offs are inevitable between providing more guidance by specific rules and enlarging the scope by general rules. Using real options theory we show that the degree of precision should be considered as a degree of flexibility which increases the value of the text. Thus, we derive a normative principle for a draftsman to choose between rules versus standards and to decide when the law should be enacted. In highly innovating environments, delaying the enactment allows lawmakers to obtain more information. Therefore, the lower the degree of precision of the law, the shorter the delay. JEL Classification ? C61, G12, K00, K40.

Keywords: degree of precision; exibility; obsolescence; rulemaking (search for similar items in EconPapers)
JEL-codes: C61 G12 K00 K40 (search for similar items in EconPapers)
Date: 2009
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Working Paper: Real Options Theory for Law Makers (2009)
Working Paper: Real Options Theory for Law Makers (2009)
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