Title: Rule Versus Discretion: The Nature of Regulatory Uncertainty and the Regulatory Framework
Abstract:As markets evolve, new regulatory concerns emerge. In response, policymakers institute new requirements for private businesses. Because they impose costs and generate uncertainty, these requirements m...As markets evolve, new regulatory concerns emerge. In response, policymakers institute new requirements for private businesses. Because they impose costs and generate uncertainty, these requirements may deter firm investment. To reduce regulatory uncertainty and favor investment, a principal can choose a rule-based regulatory framework. However, unlike discretion, rules do not adapt to circumstances and are thus inefficient. Using a micro-funded model, we uncover circumstances under which the ex-ante certainty provided by a rule dominates the ex-post efficiency provided by delegation to an unbiased agent. We also establish when delegating to a biased agent is optimal for a policy-maker. Our main results highlight that the anticipated economic responses of firms can indirectly influence the organization of the bureaucracy. As such, any attempt to evaluate firms' direct influence in the rule-making process -- through lobbying or information disclosure -- needs to account for the indirect effects we identify when determining the proper counter-factual.Read More
Publication Year: 2015
Publication Date: 2015-01-01
Language: en
Type: article
Indexed In: ['crossref']
Access and Citation
AI Researcher Chatbot
Get quick answers to your questions about the article from our AI researcher chatbot