IDEAS home Printed from https://ideas.repec.org/a/ucp/jlstud/doi10.1086-677399.html
   My bibliography  Save this article

On Experimentation and Real Options in Financial Regulation

Author

Listed:
  • Matthew Spitzer
  • Eric Talley

Abstract

Financial regulators have recently faced enhanced judicial scrutiny of their cost-benefit analysis (CBA) in advance of significant reforms. One facet of this scrutiny is judicial skepticism toward experimentation (and the real option to abandon) in the CBA calculus. That is, agencies have arguably been discouraged from counting as a benefit the value of information obtained through adopting new regulations on a provisional basis, with an option to revert to the status quo in the future. We study field experimentation versus more conventional forms of CBA (or analytic learning) in a regulatory-judicial hierarchical model. We demonstrate that there is no principled basis for dismissing (or demoting) experimentalism and that such rationales deserve a place in agencies' standard CBA arsenals. Nevertheless, our analysis also reveals an institutional reason for the tension between the judiciary and regulators, suggesting that regulators are plausibly too eager to embrace field experimentation while judges are simultaneously too recalcitrant.

Suggested Citation

  • Matthew Spitzer & Eric Talley, 2014. "On Experimentation and Real Options in Financial Regulation," The Journal of Legal Studies, University of Chicago Press, vol. 43(S2), pages 121-149.
    • Handle: RePEc:ucp:jlstud:doi:10.1086/677399
    DOI: 10.1086/677399
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1086/677399
    Download Restriction: Access to the online full text or PDF requires a subscription.
    File URL: http://dx.doi.org/10.1086/677399
    Download Restriction: Access to the online full text or PDF requires a subscription.
    File URL: https://libkey.io/10.1086/677399?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Robert P. Bartlett III, 2014. "The Institutional Framework for Cost-Benefit Analysis in Financial Regulation: A Tale of Four Paradigms?," The Journal of Legal Studies, University of Chicago Press, vol. 43(S2), pages 379-405.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Antonio E. Bernardo & Eric L. Talley & Ivo Welch, 2016. "Designing Corporate Bailouts," Journal of Law and Economics, University of Chicago Press, vol. 59(1), pages 75-104.
    2. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    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.
    2. Ellig, Jerry, 2016. "Improvements in SEC Economic Analysis since Business Roundtable: A Structured Assessment," Working Papers 07002, George Mason University, Mercatus Center.
    3. Jeffrey N. Gordon, 2014. "The Empty Call for Benefit-Cost Analysis in Financial Regulation," The Journal of Legal Studies, University of Chicago Press, vol. 43(S2), pages 351-378.
    4. Christian Leuz & Peter D. Wysocki, 2016. "The Economics of Disclosure and Financial Reporting Regulation: Evidence and Suggestions for Future Research," Journal of Accounting Research, Wiley Blackwell, vol. 54(2), pages 525-622, May.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ucp:jlstud:doi:10.1086/677399. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Journals Division (email available below). General contact details of provider: https://www.journals.uchicago.edu/JLS .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.