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Optimization and its discontents in regulatory design: Bank regulation as an example

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  • William H. Simon

Abstract

Economists and lawyers trained in economics tend to speak about regulation from a perspective organized around the basic norm of optimization. In contrast, an important managerial literature espouses a perspective organized around the basic norm of reliability. The perspectives are not logically inconsistent, but the economist's view sometimes leads in practice to a preoccupation with decisional simplicity and cost minimization at the expense of complex judgment and learning. Drawing on a literature often ignored by economists and lawyers, I elaborate the contrast between the optimization and reliability perspectives. I then show how the contrast illuminates current discussions of the reform of bank regulation.

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  • William H. Simon, 2010. "Optimization and its discontents in regulatory design: Bank regulation as an example," Regulation & Governance, John Wiley & Sons, vol. 4(1), pages 3-21, March.
    • Handle: RePEc:wly:reggov:v:4:y:2010:i:1:p:3-21
    DOI: 10.1111/j.1748-5991.2010.01069.x
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    References listed on IDEAS

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    1. Sunstein,Cass R., 2002. "Risk and Reason," Cambridge Books, Cambridge University Press, number 9780521791991, November.
    2. Peter Mooslechner & Helene Schuberth & Beat Weber (ed.), 2006. "The Political Economy of Financial Market Regulation," Books, Edward Elgar Publishing, number 3947.
    3. Tarullo, Daniel, 2008. "Banking on Basel: The Future of International Financial Regulation," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 4235.
    4. Alan Greenspan, 1998. "The role of capital in optimal banking supervision and regulation," Economic Policy Review, Federal Reserve Bank of New York, vol. 4(Oct), pages 163-168.
    5. Richard Parker, "undated". "Grading the Government," University of Connecticut School of Law Working Papers uconn_ucwps-1000, University of Connecticut School of Law.
    6. Parker,Christine, 2002. "The Open Corporation," Cambridge Books, Cambridge University Press, number 9780521818902, November.
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    Cited by:

    1. Abdulrahman Alrabiah & Steve Drew, 2022. "A framework for managing regulatory policy life-cycle challenges: an empirical design," Journal of Banking Regulation, Palgrave Macmillan, vol. 23(2), pages 210-223, June.

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