A Model of the Optimal Complexity of Rules
NBER Working Paper No. 3958 (Also Reprint No. r1981)
Rules often are complex in order to distinguish different types of behavior that may have different consequences. Greater complexity thus allows better control of behavior. But individuals may need to incur costs ex ante to determine how more complex rules apply to their contemplated conduct. Because of such costs, some individuals will choose not to learn complex rules. Also, applying more complex rules ex post to determine applicable rewards or penalties is costly. This article models the effects of complexity on individuals' decisions to acquire information, choices about whether to act, and reports of their actions to an enforcement authority. It considers how optimal sanctions depend on the complexity of rules and determines when more complex rules improve welfare.
Published: Journal of Law, Economics and Organization, vol. 11, no. 1, pp. 150-163(April 1995).