On the Virtues of Simple Standards

When: 29 Mar 2021, 14:15-15:30
Where: Zoom
Speaker: Ryan Bubb

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Meeting ID: 958 5228 2293
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We develop a new theory for the advantages of legal standards over legal rules. In short, standards that in practice operate in a relatively simple, undifferentiated manner can nonetheless produce a usefully differentiated pattern of behavior by inducing variation in beliefs about the law that correlates with what the law would ideally require. To achieve the same degree of differentiation in behavior using rules, in contrast, would require costly differentiation in legal consequences, since beliefs about rules track more closely the actual content of the rules. We identify two basic mechanisms through which simple standards can produce differentiated behavior. First, Bayesian individuals will form judgments about what simple standards require based on their own circumstances. The resulting dispersion in beliefs about the legal standard will track, at least to some extent, what the law would ideally require of different individuals. Second, individuals might take a facially complex standard at face value, even though it operates much more simply ex post. We thus put on firmer microeconomic foundations older understandings about the advantages of standards in managing complexity.