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The Costs and Benefits of Financial Market Regulation

62 Pages Posted: 29 Apr 2004  

Luigi Zingales

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: April 2004

Abstract

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.

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

Suggested Citation

Zingales, Luigi, The Costs and Benefits of Financial Market Regulation (April 2004). ECGI - Law Working Paper No. 21/2004. Available at SSRN: https://ssrn.com/abstract=536682 or http://dx.doi.org/10.2139/ssrn.536682

Luigi Zingales (Contact Author)

University of Chicago - Booth School of Business ( email )

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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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