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Real Options Theory for Law Makers*

Published online by Cambridge University Press:  17 August 2016

Bruno Deffains  and
Marie Obidzinski
Marie Obidzinski
Affiliation:
Université de Besançon, CRESE, 30 avenue de l'Observatoire 25009 BESANCON CEDEX. Email: marie.obidzinski @ univ-fcomte.fr.
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Summary

The formulation of legal rules is a challenging issue for lawmakers. Tradeoffs are inevitable between providing more guidance by specific rules and enlarging the scope by 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 the enactment allows lawmakers to obtain more information. Therefore, the lower the degree of precision of the law, the shorter the delay.

Résumé

Résumé

La formulation des règles juridiques est un véritable défi pour les producteurs de droit. Des arbitrages sont inévitables entre des règles spécifiques et des règles générales. Les premières apportent de la précision dans les signaux envoyés aux agents, les secondes ont un champ d'action plus large. En utilisant la théorie des options réelles, nous montrons que le degré de précision d'une règle peut être analysé comme un degré de flexibilité qui accroît la valeur de cette règle. Ainsi, nous dérivons un principe normatif pour les producteurs de droit confrontés aux choix entre règles et standards et devant décider de la date d'application de d'une nouvelle règle. Nous montrons en particulier que plus le degré de précision de la règle est faible, plus le délai optimal diminue.

Keywords

Flexibilitéobsolescenceproduction de droitrèglesstandardsdegree of precisionexibilityobsolescencerulemaking

JEL classification

K40: General G12: Asset Pricing • Trading Volume • Bond Interest Rates K00: General C61: Optimization Techniques • Programming Models • Dynamic Analysis
Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 75 , Issue 1 , March 2009 , pp. 93 - 117
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 2009 

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Footnotes

*

We are indebted to Emanuela Carbonara, Claude Fluet, Thierry Burger-Helmchen, Giuseppe Dari Mattiacci, Eric Langlais, Paul Mahoney, Jenny Monheim, Francesco Parisi, Stéphane Saussier, Tanguy van Ypersele, Richard Zerbe for useful comments. We would like also to thank the participants in the 2004 conference of the European Association for Evolutionary Political Economy, the 2004 Deutsch-Französiche Gespräche in der ökonomischen Theorie des Rechts at Humbolt- Universität zu Berlin and the 2005 con-ference of European Association for Law and Economics Annual Meeting. All errors remain our own.

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