Regulation of trades based on differences in beliefs

Hervé Crès and Mich Tvede
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Mich Tvede: Newcastle University

CRETA Online Discussion Paper Series from Centre for Research in Economic Theory and its Applications CRETA

Abstract: Some trades based on differences in beliefs might cause more harm than good. Should they be restricted? If yes, how? We propose three limits on regulation aimed at protecting beneficial trades: Unanimity – the regulator should not object to trades with identical beliefs; Autarky – if the regulator does not object to two unrelated trades, both with identical beliefs, then it should not object to the mere juxtaposition of the trades; and, Independence of Irrelevant Agents – the regulator should consider solely the agents involved in the trade. We show that there is a unique policy within these three limits : Laissez-faire.

Keywords: heterogeneous beliefs; Pareto efficiency; regulation; speculative trading. JEL classification numbers: D51; D69 (search for similar items in EconPapers)
Date: 2016
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https://warwick.ac.uk/fac/soc/economics/research/c ... 26_-_creta_tvede.pdf

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Journal Article: Regulation of trades based on differences in beliefs (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:wcreta:26

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