Società Italiana di Diritto ed Economia, SIDE - ISLE 2015 - 11TH ANNUAL CONFERENCE

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Effects of Standard Vagueness: Legal Uncertainty in the Lab
Laura Penelope Lyhs, Sven Hoeppner

Last modified: 2015-12-15

Abstract


Doctrinal lawyers strive to minimize indeterminacy of the law based on the premise that legal uncertainty undermines socially desired activities. By contrast, research in law and economics suggests that increasing legal uncertainty can be socially beneficial. This conceptual conflict is understudied. We conduct a neutrally framed laboratory experiment to test these opposing views. Participants choose an activity level that determines their payment as well as a payment reduction if their choice exceeds a randomly determined activity benchmark (legal standard). We manipulate between subjects the spread of the distribution from which the benchmark is drawn. We find that participants are susceptible to our manipulations, but not in a sense that corroborates the legal intuition. Rather our results indicate a U-shape between increases of legal uncertainty and average activity levels. Low levels of legal uncertainty on average induce overcompliance. After a tipping point, further increasing legal uncertainty reduces average overcompliance. Moreover, our results reveal an unintended consequence of legal uncertainty that has received litte attention: with increasing vagueness individual behavior becomes more erratic, i.e., the law looses its coordination function.

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