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A Model of the Optimal Complexity of Rules

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  • Louis Kaplow

Abstract

Rules often are complex in order to distinguish different types of behavior that may have different consequences. Greater complexity thus allows better control of behavior. But individuals may need to incur costs ex ante to determine how more complex rules apply to their contemplated conduct. Because of such costs, some individuals will choose not to learn complex rules. Also, applying more complex rules ex post to determine applicable rewards or penalties is costly. This article models the effects of complexity on individuals' decisions to acquire information, choices about whether to act, and reports of their actions to an enforcement authority. It considers how optimal sanctions depend on the complexity of rules and determines when more complex rules improve welfare.

Suggested Citation

  • Louis Kaplow, 1992. "A Model of the Optimal Complexity of Rules," NBER Working Papers 3958, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:3958
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    References listed on IDEAS

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    1. Kim C. Border & Joel Sobel, 1987. "Samurai Accountant: A Theory of Auditing and Plunder," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 54(4), pages 525-540.
    2. Kaplow, Louis, 1990. "Optimal Deterrence, Uninformed Individuals, and Acquiring Information about Whether Acts Are Subject to Sanctions," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 6(1), pages 93-128, Spring.
    3. Townsend, Robert M., 1979. "Optimal contracts and competitive markets with costly state verification," Journal of Economic Theory, Elsevier, vol. 21(2), pages 265-293, October.
    4. Isaac Ehrlich & Richard A. Posner, 1974. "An Economic Analysis of Legal Rulemaking," The Journal of Legal Studies, University of Chicago Press, vol. 3(1), pages 257-286, January.
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    Cited by:

    1. Garoupa, Nuno & Obidzinski, Marie, 2006. "The Scope of Punishment: An Economic Theory of Harm-Based vs. Act-Based Sanctions," CEPR Discussion Papers 5899, C.E.P.R. Discussion Papers.
    2. Ram Singh, 2001. "Effects of Courts' Errors on Efficiency of Liability Rules: When Individuals are Imperfectly Informed," Working papers 97, Centre for Development Economics, Delhi School of Economics.
    3. Numa Garoupa, 1999. "Optimal Law Enforcement with Dissemination of Information," European Journal of Law and Economics, Springer, vol. 7(3), pages 183-196, May.
    4. Calcott, Paul & Walls, Margaret, 2005. "Waste, recycling, and "Design for Environment": Roles for markets and policy instruments," Resource and Energy Economics, Elsevier, vol. 27(4), pages 287-305, November.
    5. Ram Singh, 2001. "Efficient Liability Rules When Courts Make Errors in Estimation of the Harm : Complete Characterization," Working papers 99, Centre for Development Economics, Delhi School of Economics.
    6. Kaplow, Louis & Shavell, Steven, 1994. "Optimal Law Enforcement with Self-Reporting of Behavior," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 583-606, June.

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