Abstract
Much of the discussion in favor of simplicity of legal rules and against complex regulation is rooted in economically developed countries with strong state capacity. With economic development and state capacity comes the presumption that complex rules will be enforced. Therefore, analysis focuses on the administrative and error costs, and the unintended consequences of complex rules that are enforced. This paper argues that the Epsteinian insight is even more relevant to the developing world where countries often lack enough state capacity to even take on simple governance tasks. Developing countries often have less than 20 percent of the state capacity of developed countries. However, this does not mean they limit the regulatory structure to a fifth of the tasks. Under-enforcement or non-enforcement of complex rules imposes different costs and unintended consequences on society. Using examples from India, this paper highlights problems of enforcement swamping, deadweight loss, and corruption arising from the under-enforcement of complex rules. To avoid these problems, the paper concludes that a fortiori less developed countries should favor simple rules.
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Notes
The World Bank has recently released the findings of the investigation into irregularities in the Doing Business 2018 and 2020 reports (Machen et al., 2021) on the allegations that the rankings of countries like China and Saudi Arabia (2018) and Azerbaijan and UAE (2020) were manipulated in 2018–2020 for political reasons. We use data prior to any alleged manipulation and our results do not depend on Azerbaijan, China, Saudi Arabia and UAE.
The Minimum Wages Act, 1948; The Payment of Wages Act, 1936; The Payment of Bonus Act, 1965; The Equal Remuneration Act, 1976; The Trade Unions Act, 1926; The Industrial Employment (Standing Orders) Act, 1946; The Industrial Disputes Act, 1947; The Weekly Holidays Act, 1942; The Factories Act, 1948; The Plantation Labour Act, 1951; The Mines Act, 1952; The Building and Other Constructions Workers’ (Regulation of Employment and Conditions of Service) Act, 1996; The Motor Transport Workers Act, 1961; The Beedi and Cigar Workers (Conditions of Employment) Act, 1966; The Contract Labour (Regulation and Abolition) Act, 1970; The Bonded Labour System (Abolition) Act, 1976; The Sales Promotion Employees (Conditions of Service) Act, 1976; The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979; The Cine Workers and Cinema Theatre Workers (Regulation of Employment) Act, 1981; The Dock Workers (Safety, Health and Welfare) Act, 1986; The Child Labour (Prohibition and Regulation) Act, 1986; The Working Journalists and Other Newspapers Employees (Conditions of Service) and Miscellaneous Provisions Act, 1955; The Working Journalists (Fixation of rates of Wages) Act, 1958; The Employees’ Compensation Act, 1923; The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952; The Employees’ State Insurance Act, 1948; The Maternity Benefit Act, 1961; The Payment of Gratuity Act, 1972; The Unorganized Workers’ Social Security Act, 2008; The Building and Other Construction Workers Cess Act, 1996; The Mica Mines Labour Welfare Fund Act, 1946; The Cine Workers Welfare (Cess) Act, 1981; The Cine Workers Welfare Fund Act, 198; The Limestone and Dolomite Mines Labour Welfare Fund Act, 1972; The Iron Ore Mines, Manganese Ore Mines and Chrome Ore Mines Labour Welfare (Cess)Act, 1976; The Iron Ore Mines, Manganese Ore Mines and Chrome Ore Mines Labor Welfare Fund Act,1976; The Beedi Workers Welfare Cess Act, 1976; The Beedi Workers Welfare Fund Act, 1976; The Labour Laws (Exemption from Furnishing Returns and Maintaining Registers by Certain Establishments) Act, 1988; The Employment Exchange (Compulsory Notification of Vacancies) Act, 1959. In a recent attempt to streamline labor laws the Indian Parliament consolidated 29 labor statutes into 4 labor codes, but keeping the content largely the same.
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Shruti Rajagopalan is a Fellow at the Classical Liberal Institute at the New York University School of Law, which organized and funded the conference where an earlier version of this paper was presented.
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Rajagopalan, S., Tabarrok, A. Simple rules for the developing world. Eur J Law Econ 52, 341–362 (2021). https://doi.org/10.1007/s10657-021-09716-3
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DOI: https://doi.org/10.1007/s10657-021-09716-3