Cat and Mouse: The Evolutionary Dynamics of Getting Around the Law
Regulators in many fields of law—tax shelters, payday lending, intellectual property--play a costly game of cat and mouse with those who innovate to escape regulation. Payday lenders, for example, have developed a series of innovative loopholes to avoid regulation, each more ingenious than the last; most recently, lenders have partnered with Indian tribes to claim immunity from state regulation altogether. Insight into this ever-evolving game of innovation comes from an unexpected place: recent evolutionary dynamics work in biology on adaptive drug resistance. Math models have used coupled differential equations to help public health officials optimize the timing and strength of drug treatment. Borrowing from these models, we develop a simple model to describe the dynamic “cat and mouse” relationship, with an eye towards advising regulators about how to optimize their strategy under constrained resources. We counsel regulators that in many instances, the optimal strategy surprisingly is to respond quite slowly to the latest innovative loophole or to weaken the strength of regulation. These counterintuitive results show that the evolutionary dynamics of biological systems can potentially shed light on the dynamics of social systems, as actors innovatively adapt to each other in new and often unpredictable ways.