Regulatory decision errors, legal uncertainty and welfare: a general treatment

Yannis Katsoualcos, David Tregear Ulph

    Research output: Contribution to journalArticlepeer-review

    14 Citations (Scopus)
    2 Downloads (Pure)

    Abstract

    We provide a general treatment of the implications for welfare of various sources of legal uncertainty facing agents about the decisions made by a regulatory authority. We distinguish the legal uncertainty from the decision errors made by the authority. While an increase in decision errors will always reduce welfare, for any given level of decision errors, information structures involving more legal uncertainty can improve welfare. This holds always when sanctions are set at their optimal level. This transforms radically one's perception about the “costs” of legal uncertainty. We also provide general proofs for two results, previously established under restrictive assumptions.
    Original languageEnglish
    Pages (from-to)326-352
    JournalInternational Journal of Industrial Organization
    Volume53
    Early online date24 May 2016
    DOIs
    Publication statusPublished - Jul 2017

    Keywords

    • Optimal law enforcement
    • Optimal penalties
    • Legal uncertainty
    • Decision errors

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