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Measuring Regulatory Complexity

Author

Listed:
  • Colliard, Jean-Edouard

    (HEC Paris)

  • Georg, Co-Pierre

    (EDHEC Business School)

Abstract

Despite a heated debate on the complexity of financial regulation, a comprehensive framework to study regulatory complexity is lacking. We propose one inspired by the analysis of algorithmic complexity in computer science. We use this framework to distinguish different dimensions of complexity, classify existing measures, develop new ones, compute them on two examples - Basel I and the Dodd-Frank Act - and validate them using novel experiments. Our framework offers a quantitative approach to the policy trade-off between regulatory complexity and precision. Our toolkit is freely available and allows researchers to measure the complexity of any normative text and test alternative measures.

Suggested Citation

  • Colliard, Jean-Edouard & Georg, Co-Pierre, 2020. "Measuring Regulatory Complexity," HEC Research Papers Series 1358, HEC Paris.
    • Handle: RePEc:ebg:heccah:1358
    DOI: 10.2139/ssrn.3523824
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    References listed on IDEAS

    as
    1. Gai, Prasanna & Kemp, Malcolm & Sánchez Serrano, Antonio & Schnabel, Isabel, 2019. "Regulatory complexity and the quest for robust regulation," Report of the Advisory Scientific Committee 8, European Systemic Risk Board.
    2. Herring, Richard J., 2018. "The Evolving Complexity of Capital Regulation," Working Papers 18-01, University of Pennsylvania, Wharton School, Weiss Center.
    3. Germán Gutiérrez & Thomas Philippon, 2019. "The Failure of Free Entry," NBER Working Papers 26001, National Bureau of Economic Research, Inc.
    4. repec:ces:ifodic:v:8:y:2010:i:2:p:14566986 is not listed on IDEAS
    5. Richard J. Herring, 2018. "The Evolving Complexity of Capital Regulation," Journal of Financial Services Research, Springer;Western Finance Association, vol. 53(2), pages 183-205, June.
    6. Carlin, Bruce I., 2009. "Strategic price complexity in retail financial markets," Journal of Financial Economics, Elsevier, vol. 91(3), pages 278-287, March.
    7. Martin Hellwig, 2010. "Capital Regulation after the Crisis: Business as Usual?," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 8(02), pages 40-46, July.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Vita, Giuseppe Di, 2021. "Political corruption and legislative complexity: Two sides of same coin?," Structural Change and Economic Dynamics, Elsevier, vol. 57(C), pages 136-147.
    2. Singla, Shikhar, 2023. "Regulatory costs and market power," LawFin Working Paper Series 47, Goethe University, Center for Advanced Studies on the Foundations of Law and Finance (LawFin).
    3. Hałaj, Grzegorz & Martinez-Jaramillo, Serafin & Battiston, Stefano, 2024. "Financial stability through the lens of complex systems," Journal of Financial Stability, Elsevier, vol. 71(C).

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    More about this item

    Keywords

    Financial Regulation; Capital Regulation; Regulatory Complexity; Basel Accords;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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