The Costs and Benefits of Financial Market Regulation
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); University of Chicago - Polsky Center for Entrepreneurship; European Corporate Governance Institute (ECGI)
ECGI - Law Working Paper No. 21/2004
This paper revisits the controversy on regulation and applies its insights to the debate on corporate governance and mutual funds. The general result of this exercise is that a strong case can be made in favor of more mandatory disclosure. While theoretically there is scope also for other mandatory regulation, it is unclear whether its benefits exceed its costs. Furthermore, it is difficult to see how this ideal regulation could emerge from the political process, which tends to be dominated by incumbent firms. I propose a mechanism to reduce this bias.
Number of Pages in PDF File: 62
Keywords: Pigou's theory, Coase's theorem, costs and benefits of regulation, financial markets, social welfare, enforcement costs, disclosure requirements, political pressures, mandatory rules, default rules, behavioral literature, corporate governance, mutual funds
JEL Classification: G18, G38, K2
Date posted: April 29, 2004