Legal Standards and Incomplete Monitoring

Abstract

Regulators can adjust penalties to compensate for incomplete monitoring of regulated parties that are subject to legal rules, but compensating penalty adjustments often are unavailable when regulated parties are subject to legal standards. Incomplete monitoring consequently invites greater noncompliance under standards than under rules. This chapter develops a model that quantifies some of the specific tradeoffs that regulators face in designing standards regimes under incomplete monitoring. The model also considers the extent to which suboptimal compliance due to incomplete monitoring is likely to result in deadweight loss in different settings.

Citation

Hasen, D. (2022), "Legal Standards and Incomplete Monitoring", Langenfeld, J., Fagan, F. and Clark, S. (Ed.) The Law and Economics of Privacy, Personal Data, Artificial Intelligence, and Incomplete Monitoring (Research in Law and Economics, Vol. 30), Emerald Publishing Limited, Leeds, pp. 109-170. https://doi.org/10.1108/S0193-589520220000030010