Optimization and its Discontents in Regulatory Design: Bank Regulation as an Example
William H. Simon
Columbia University - Law School; Stanford University - Stanford Law School
January 8, 2010
Columbia Public Law Research Paper No. 10-224
Economists and economically-trained lawyers tend to speak about regulation from a perspective organized around the basic norm of optimization. By contrast, an important managerial literature espouses a perspective organized around the basic norm of reliability. The perspectives are not logically inconsistent, but the economist’s view sometimes leads in practice to a preoccupation with decisional simplicity and cost minimization at the expense of complex judgment and learning. Drawing on a literature often ignored by economists and lawyers, I elaborate the contrast between the optimization and reliability perspectives. I then show how it illuminates current discussions of the reform of bank regulation.
Number of Pages in PDF File: 33
Date posted: January 8, 2010