Corrective Regulation with Imperfect Instruments

Ansgar Walther and Dávila, Eduardo
Authors registered in the RePEc Author Service: Eduardo Davila

No 16448, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper studies the optimal design of second-best corrective regulation, when some agents or activities cannot be perfectly regulated. We show that policy elasticities and Pigouvian wedges are sufficient statistics to characterize the marginal welfare impact of regulatory policies in a large class of environments. We show that the optimal second-best policy is determined by a subset of policy elasticities: leakage elasticities, and characterize the marginal value of relaxing regulatory constraints. We apply our results to scenarios with unregulated agents/activities and with uniform regulation across agents/activities. We illustrate our results in several applications.

Keywords: Corrective regulation; Second-best policy; Pigouvian taxation; Policy elasticities; Leakage elasticities; Regulatory arbitrage; Financial regulation (search for similar items in EconPapers)
JEL-codes: D62 G21 G28 (search for similar items in EconPapers)
Date: 2021-08
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Related works:
Working Paper: Corrective regulation with imperfect instruments (2022)
Working Paper: Corrective Regulation with Imperfect Instruments (2021)
Working Paper: Corrective Regulation with Imperfect Instruments (2021)
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