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Optimization and its Discontents in Regulatory Design: Bank Regulation as an Example

33 Pages Posted: 8 Jan 2010  

William H. Simon

Columbia University - Law School; Stanford University - Stanford Law School

Date Written: January 8, 2010

Abstract

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.

Suggested Citation

Simon, William H., Optimization and its Discontents in Regulatory Design: Bank Regulation as an Example (January 8, 2010). Columbia Public Law Research Paper No. 10-224. Available at SSRN: https://ssrn.com/abstract=1533446 or http://dx.doi.org/10.2139/ssrn.1533446

William H. Simon (Contact Author)

Columbia University - Law School ( email )

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Stanford University - Stanford Law School ( email )

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