Simple rules for a complex regulatory world: the case of financial regulation

Christopher Mufarrige and Todd J. Zywicki ()
Additional contact information
Christopher Mufarrige: Wilson, Sonsini, Goodrich, and Rosati
Todd J. Zywicki: George Mason University

European Journal of Law and Economics, 2021, vol. 52, issue 2, No 6, 285-305

Abstract: Abstract Twenty-five years ago Richard Epstein published Simple Rules for a Complex World, which would go on to become one of Epstein’s most influential works. This essay, prepared for a conference and symposium to celebrate the anniversary of the book, applies the insights of Simple Rules in the context of one of the most complex areas of social and economic regulation, financial regulation. The complexity of modern finance is often thought to require an equally complex regulatory structure to preserve the safety of the financial system and thus Epstein’s approach is inapplicable to this context. We argue that this argument is exactly backwards. Simplicity in the regulatory framework is essential for financial institutions to manage risk and conduct their affairs efficiently and prudently. Complexity, by contrast, begets a variety of destabilizing problems, including the likelihood of regulatory arbitrage and errors by regulators that increase risk. We argue that refashioning financial regulation around Epstein’s concept of simple rules would create a more stable and efficient financial regulatory system.

Keywords: Hayek; Simple rules; Financial regulation (search for similar items in EconPapers)
JEL-codes: B53 D18 G28 K20 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1007/s10657-021-09698-2 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:ejlwec:v:52:y:2021:i:2:d:10.1007_s10657-021-09698-2

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10657

DOI: 10.1007/s10657-021-09698-2

Access Statistics for this article

European Journal of Law and Economics is currently edited by Jürgen Georg Backhaus, Giovanni B. Ramello and Alain Marciano

More articles in European Journal of Law and Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().