Benefit-Cost Analysis for Financial Regulation

Eric Posner and Eric Weyl ()

American Economic Review, 2013, vol. 103, issue 3, 393-97

Abstract: Calls for benefit-cost analysis in rule-making, based on the Dodd-Frank Wall Street Reform Act, have revealed a paucity of work on allocative efficiency in financial markets. We propose three principles to help fill this gap. First, we highlight the need for quantifying the statistical cost of a crisis to trade off the risk of a crisis against loss of growth during good times. Second, we propose a framework quantifying the social value of price discovery, and highlighting which arbitrages are over- and under-supplied from a social perspective. Finally, we distinguish between insurance benefits and gambling-facilitation harms of market completion.

JEL-codes: D61 G21 G28 L51 (search for similar items in EconPapers)
Date: 2013
Note: DOI: 10.1257/aer.103.3.393
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Citations: View citations in EconPapers (23)

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