Leverhulme Lecture: Regulating Complexity in Financial Markets
Steven L. Schwarcz
Duke University School of Law
November 10, 2010
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.
Number of Pages in PDF File: 18
Keywords: financial markets, regulation
Date posted: November 11, 2010 ; Last revised: December 28, 2014