Rules with Discretion and Local Information

T. Renee Bowen, David Kreps and Andrzej Skrzypacz

Research Papers from Stanford University, Graduate School of Business

Abstract: To ensure that individual actors take certain actions, community enforcement may be required. This can present a rules-versus-discretion dilemma: It can become impossible to employ discretion based on information that is not widely held, because the wider community is unable to tell whether the information was used correctly. Instead, actions may need to conform to simple and widely verifiable rules. We study when discretion in the form of permitted exceptions to the simple rule can be permitted, if the information is shared by the action taker and a second party, who is able to verify for the larger group that an exception is warranted. In particular, we compare protocols where the second party excuses the action taker from taking the action ex ante with protocols where the second party instead forgives a rule-breaking actor ex post, finding that the latter is, in general, useful in a wider variety of circumstances.

JEL-codes: C73 D82 (search for similar items in EconPapers)
Date: 2012-08
New Economics Papers: this item is included in nep-cta and nep-mic
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Journal Article: Rules with Discretion and Local Information (2013)
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