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Regulatory decision errors, Legal Uncertainty and welfare: A general treatment

Yannis Katsoulacos and David Ulph

International Journal of Industrial Organization, 2017, vol. 53, issue C, 326-352

Abstract: We provide a general treatment of the implications for welfare of various sources of legal uncertainty facing agents about the decisions made by a regulatory authority. We distinguish the legal uncertainty from the decision errors made by the authority. While an increase in decision errors will always reduce welfare, for any given level of decision errors, information structures involving more legal uncertainty can improve welfare. This holds always when sanctions are set at their optimal level. This transforms radically one's perception about the “costs” of legal uncertainty. We also provide general proofs for two results, previously established under restrictive assumptions.

Keywords: Optimal law enforcement; Optimal penalties; Legal uncertainty; Decision errors (search for similar items in EconPapers)
JEL-codes: K4 L4 K21 K23 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1016/j.ijindorg.2016.04.013

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International Journal of Industrial Organization is currently edited by P. Bajari, B. Caillaud and N. Gandal

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Handle: RePEc:eee:indorg:v:53:y:2017:i:c:p:326-352