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Leverhulme Lecture: Regulating Complexity in Financial Markets

18 Pages Posted: 11 Nov 2010 Last revised: 28 Dec 2014

Steven L. Schwarcz

Duke University School of Law

Date Written: November 10, 2010

Abstract

Complexity is the greatest challenge to 21st Century financial regulation, having the potential to impair markets and investments in several interrelated ways. Furthermore, complexity can cause failures that individual market participants cannot, or will not have incentive to, remedy. These failures are driven by information uncertainty, misalignment of interests and incentives among market participants, and nonlinear feedback and tight coupling that result in sudden unexpected market changes. These are the same types of failures that engineers have long faced when working with complex engineering systems. The lecture uses engineering solutions such as chaos theory to examine how financial regulation should be structured to correct those failures.

Keywords: financial markets, regulation

Suggested Citation

Schwarcz, Steven L., Leverhulme Lecture: Regulating Complexity in Financial Markets (November 10, 2010). Available at SSRN: https://ssrn.com/abstract=1707047 or http://dx.doi.org/10.2139/ssrn.1707047

Steven L. Schwarcz (Contact Author)

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States
919-613-7060 (Phone)
919-613-7231 (Fax)

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