Rules versus Standards in Rich and Poor Countries: Precise Legal Norms as Substitutes for Human Capital in Low-Income Countries

Abstract

Legal norms can be precise rules, which are blueprints for action and allow for mechanical decisions by judges and civil servants. Alternatively, they can be vague, mission-oriented standards, which delegate decisions from the maker of the law to the judiciary and the administration. Rules economize on the costs of adjudication and administration. Standards economize on the costs of norm specification. In low-income countries with a relatively low level of training, it is efficient to concentrate human capital to specify precise legal norms, which can easily be adjudicated and administered but might be inflexible. In rich countries with a high endowment of human capital, it is better to have vague legal norms. The adjudication of vague legal norms requires a high level of expertise, but allows for the flexibility to reach custom-made decisions.