Rules with Discretion and Local Information

Stanford Graduate School of Business Research Paper No. 2117R

31 Pages Posted: 4 Sep 2012 Last revised: 25 Jan 2013

See all articles by T. Renee Bowen

T. Renee Bowen

University of California, San Diego; National Bureau of Economic Research; Center for Commerce and Diplomacy (CCD)

David M. Kreps

Stanford Graduate School of Business

Andrzej Skrzypacz

Stanford University - Stanford Graduate School of Business

Date Written: December 2012

Abstract

To ensure that individual actors take certain actions, community enforcement may be required. This can present a rules-versus-discretion dilemma: It can become impossible to employ discretion based on information that is not widely held, because the wider community is unable to tell whether the information was used correctly. Instead, actions may need to conform to simple and widely verifiable rules. We study when discretion in the form of permitted exceptions to the simple rule can be permitted, if the information is shared by the action taker and a second party, who is able to verify for the larger group that an exception is warranted. In particular, we compare protocols where the second party excuses the action taker from taking the action ex ante with protocols where the second party instead forgives a rule-breaking actor ex post, finding that the latter is, in general, useful in a wider variety of circumstances.

JEL Classification: C73, D82

Suggested Citation

Bowen, T. Renee and Kreps, David M. and Skrzypacz, Andrzej, Rules with Discretion and Local Information (December 2012). Stanford Graduate School of Business Research Paper No. 2117R, Available at SSRN: https://ssrn.com/abstract=2140520 or http://dx.doi.org/10.2139/ssrn.2140520

T. Renee Bowen (Contact Author)

University of California, San Diego ( email )

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HOME PAGE: http://https://sites.google.com/site/tamarareneebowenlyn/

National Bureau of Economic Research ( email )

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Center for Commerce and Diplomacy (CCD) ( email )

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HOME PAGE: http://https://ccd.ucsd.edu/

David M. Kreps

Stanford Graduate School of Business ( email )

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Andrzej Skrzypacz

Stanford University - Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
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650-725-9932 (Fax)

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