Tuesday 11
Session Richard Brooks - legal uncertainty
Richard Brooks
› 11:00 - 11:30 (30min)
› 401
Harmful, Harmless, and Beneficial Uncertainty in Law
Alex Raskolnikov  1@  , Scott Baker@
1 : Columbia University (USA)

This article offers a model investigating the impact of four types of law-related uncertainty on the utility of risk-neutral agents. We find that an increase in legal or factual uncertainty makes agents worse off if enforcement is targeted (meaning that greater deviations from what the law demands lead to a greater probability of enforcement), or if sanctions are graduated (meaning that greater deviations from what the law demands result in higher sanctions). In contrast, agents are indifferent to increases in uncertainty related to the chance of detection or the size of the sanction. Finally, risk-neutral agents benefit from greater legal uncertainty if they act only upon a preapproval by a cautious regulator. Our findings shed light on numerous policy debates ranging from the appropriate specificity of accounting standards to the corporate criminal liability reform and the government's preference for secrecy about the details of tax law and tax enforcement.

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