Regulatory decision errors, legal uncertainty and welfare : a general treatment
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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.
Katsoualcos , Y & Ulph , D T 2017 , ' Regulatory decision errors, legal uncertainty and welfare : a general treatment ' , International Journal of Industrial Organization , vol. 53 , pp. 326-352 . https://doi.org/10.1016/J.ijindorg.2016.04.013
International Journal of Industrial Organization
Crown Copyright © 2016 Published by Elsevier B.V. This work is made available online in accordance with the publisher’s policies. This is the author created, accepted version manuscript following peer review and may differ slightly from the final published version. The final published version of this work is available at https://dx.doi.org/10.1016/j.ijindorg.2016.04.013