Rules and Standards When Compliance Costs Are Private Information

Rules and Standards When Compliance Costs Are Private Information. Maciej Kotowski, Richard Zeckhauser, 2014, Paper, "A regulator, seeking to maximize net benefits, must choose between rules and standards and then set a level of care. The regulated agents have private information about their compliance costs. Rules are set ex ante, so agents know the required level of care. Standards are established after agents have taken initial actions, in anticipation of the regulating bureau’s directive. Those actions allow the bureau to make inferences about agents’ costs and thus set more appropriate requirements."