Real Options Theory for Law Makers

Bruno Deffains and Marie Obidzinski
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Bruno Deffains: University Paris 10, CNRS, EconomiX

No 2009014, Discussion Papers (REL - Recherches Economiques de Louvain) from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: The formulation of legal rules is a challenging issue for law makers. Tradeoffs 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 law makers to obtain more information. Therefore, the lower the degree of precision of the law, the shorter the delay.

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)
Pages: 24
Date: 2009-03-01
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http://sites.uclouvain.be/econ/DP/REL/2009014.pdf (application/pdf)

Related works:
Journal Article: Real Options Theory for Law Makers (2009)
Working Paper: Real Options Theory for Law Makers (2009)
Working Paper: Real Options Theory for Law Maker (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvre:2009014

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