Law Enforcement under Incomplete Law: Theory and Evidence from Financial Market Regulation

Cheng-Gang Xu and Katharina Pistor

No 3788, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This Paper studies the design of law-making and law enforcement institutions based on the premise that law is inherently incomplete. Under incomplete law, law enforcement by courts may suffer from deterrence failure. As a potential remedy, a regulatory regime is introduced. The major functional difference between courts and regulators is that courts enforce law reactively, that is only once others have initiated law enforcement procedures, while regulators enforce law proactively, i.e. on their own initiative. We study optimal regime selection between a court and a regulatory regime and present evidence from the history of financial market regulation.

Keywords: Financial markets; Regulation; Law enforcement; Incomplete laws (search for similar items in EconPapers)
JEL-codes: G30 K20 K40 N20 (search for similar items in EconPapers)
Date: 2003-02
New Economics Papers: this item is included in nep-cfn and nep-law
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Citations: View citations in EconPapers (5)

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