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Accounting for Financial Innovation and Borrower Confidence in Financial Rule Making: Analogies from Health Policy

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  • Daniel Carpenter

Abstract

In an industrial context where new products may appear regularly, the regulator--and the analyst who seeks to judge the benefit-cost ratio of the regulator's proposals--faces at least two variables relevant to decision making: the rate of new-product innovation and the distribution governing the market's beliefs in those future products. Following an analogy to health policy, where discussions of regulation's effects on innovation and consumer confidence are common, I propose that these variables be systematically taken into account in the kind of net-present-value analysis of proposed rules that currently characterizes benefit-cost analysis (BCA) of rules in environmental and health regulation and that characterizes the Office of Information and Regulatory Affairs (OIRA) review of these BCAs and the associated rules. This requires models of innovation and market beliefs under varying conditions of regulation, models that are often industry specific and draw on intuition and empirical research from a number of disciplines.

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  • Daniel Carpenter, 2014. "Accounting for Financial Innovation and Borrower Confidence in Financial Rule Making: Analogies from Health Policy," The Journal of Legal Studies, University of Chicago Press, vol. 43(S2), pages 331-349.
    • Handle: RePEc:ucp:jlstud:doi:10.1086/677298
    DOI: 10.1086/677298
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    References listed on IDEAS

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    1. Daniel Carpenter & Michael M. Ting, 2007. "Regulatory Errors with Endogenous Agendas," American Journal of Political Science, John Wiley & Sons, vol. 51(4), pages 835-852, October.
    2. Ariel Pakes & Paul McGuire, 1994. "Computing Markov-Perfect Nash Equilibria: Numerical Implications of a Dynamic Differentiated Product Model," RAND Journal of Economics, The RAND Corporation, vol. 25(4), pages 555-589, Winter.
    3. Reinganum, Jennifer F, 1982. "A Dynamic Game of R and D: Patent Protection and Competitive Behavior," Econometrica, Econometric Society, vol. 50(3), pages 671-688, May.
    4. Carpenter, Daniel P., 2004. "Protection without Capture: Product Approval by a Politically Responsive, Learning Regulator," American Political Science Review, Cambridge University Press, vol. 98(4), pages 613-631, November.
    5. Liran Einav & Amy Finkelstein, 2011. "Selection in Insurance Markets: Theory and Empirics in Pictures," Journal of Economic Perspectives, American Economic Association, vol. 25(1), pages 115-138, Winter.
    6. Bryan Bollinger & Phillip Leslie & Alan Sorensen, 2011. "Calorie Posting in Chain Restaurants," American Economic Journal: Economic Policy, American Economic Association, vol. 3(1), pages 91-128, February.
    7. Ginger Zhe Jin & Phillip Leslie, 2003. "The Effect of Information on Product Quality: Evidence from Restaurant Hygiene Grade Cards," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(2), pages 409-451.
    8. Law, Marc T., 2003. "The Origins of State Pure Food Regulation," The Journal of Economic History, Cambridge University Press, vol. 63(4), pages 1103-1130, December.
    9. Law, Marc T. & Kim, Sukkoo, 2005. "Specialization and Regulation: The Rise of Professionals and the Emergence of Occupational Licensing Regulation," The Journal of Economic History, Cambridge University Press, vol. 65(3), pages 723-756, September.
    10. Marc T. Law & Mindy S. Marks, 2009. "Effects of Occupational Licensing Laws on Minorities: Evidence from the Progressive Era," Journal of Law and Economics, University of Chicago Press, vol. 52(2), pages 351-366, May.
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    Cited by:

    1. Eric A. Posner & E. Glen Weyl, 2014. "Benefit-Cost Paradigms in Financial Regulation," The Journal of Legal Studies, University of Chicago Press, vol. 43(S2), pages 1-34.

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