Real Options Theory for Lawmakers
Deffains, Bruno
Real Options Theory for Lawmakers - 2009.
47
The formulation of legal rules is a challenging issue for lawmakers. Trade-offs are inevitable between providing more guidance through specific rules and enlarging the scope of 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 enactment allows lawmakers to obtain more information. Therefore, the lower the degree of precision of the law, the shorter the delay.
Real Options Theory for Lawmakers - 2009.
47
The formulation of legal rules is a challenging issue for lawmakers. Trade-offs are inevitable between providing more guidance through specific rules and enlarging the scope of 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 enactment allows lawmakers to obtain more information. Therefore, the lower the degree of precision of the law, the shorter the delay.
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