Benefit-Cost Analysis for Financial Regulation
- (pp. 393-97)
AbstractCalls for benefit-cost analysis in rule-making, based on the Dodd-Frank Wall Street Reform Act, have revealed a paucity of work on allocative efficiency in financial markets. We propose three principles to help fill this gap. First, we highlight the need for quantifying the statistical cost of a crisis to trade off the risk of a crisis against loss of growth during good times. Second, we propose a framework quantifying the social value of price discovery, and highlighting which arbitrages are over- and under-supplied from a social perspective. Finally, we distinguish between insurance benefits and gambling-facilitation harms of market completion.
Citation2013. "Benefit-Cost Analysis for Financial Regulation." American Economic Review, 103(3): 393-97. DOI: 10.1257/aer.103.3.393
- D61 Allocative Efficiency; Cost-Benefit Analysis
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G28 Financial Institutions and Services: Government Policy and Regulation
- L51 Economics of Regulation