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In Praise of (Some) Red Tape: A New Approach to Regulation

Gordon Menzies, Peter Dixon and Maureen Rimmer

No 33, Working Paper Series from Economics Discipline Group, UTS Business School, University of Technology, Sydney

Abstract: The costs of removing red tape include a lower chance of detecting recession-generating flaws in the financial system. What we call independent dimensions of regulation (IDRs) operate more or less independently to other groupings. If an IDR’s optimality is unknown, it may be risky to remove. Uncertainty thus implies that (some) red tape – i.e. a small amount of overregulation – is justified, in contrast to the Brainard (1967) principle that uncertainty dictates less policy activism. The long run GDP benefit of a 1% improvement in financial services productivity is 0.06% in our CGE model. These relatively modest gains reinforce our conclusion.

Keywords: Banking; Regulation; Monitoring; Financial Crises; Independent dimension of regulation (search for similar items in EconPapers)
JEL-codes: G01 G18 G28 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2016-03-01
New Economics Papers: this item is included in nep-cmp and nep-hpe
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