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Challenges for Cost-Benefit Analysis of Financial Regulation

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  • John H. Cochrane

Abstract

I survey the nature of costs and benefits of financial regulation, both macroregulation designed to stop crises and microregulation of products, markets, and institutions. The nature of financial regulatory costs and benefits poses a great challenge for formalized analysis. Health-and-safety or environmental regulation focuses on simple actions, like releasing a pollutant. The costs and benefits of financial regulation focus on the behavioral, market, general equilibrium, and political reactions. I offer some suggestions on the structure of a cost-benefit process that recognizes the nature of financial regulation costs and benefits, lying between pure conceptual cost-benefit analysis and the rigid legal structure currently envisioned.

Suggested Citation

  • John H. Cochrane, 2014. "Challenges for Cost-Benefit Analysis of Financial Regulation," The Journal of Legal Studies, University of Chicago Press, vol. 43(S2), pages 63-105.
    • Handle: RePEc:ucp:jlstud:doi:10.1086/678351
    DOI: 10.1086/678351
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    References listed on IDEAS

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    Cited by:

    1. Thomas L. Hogan, 2021. "A Review of the Regulatory Impact Analysis of Risk-Based Capital and Related Liquidity Rules," JRFM, MDPI, vol. 14(1), pages 1-29, January.
    2. Christian Leuz, 2018. "Evidence-based policymaking: promise, challenges and opportunities for accounting and financial markets research," Accounting and Business Research, Taylor & Francis Journals, vol. 48(5), pages 582-608, July.
    3. Hans Genberg & Michael Zamorski, 2015. "Implementing Macroprudential Policies: Challenges, Pitfalls and Way Forward," Working Papers wp09, South East Asian Central Banks (SEACEN) Research and Training Centre.
    4. Barth, James R. & Miller, Stephen Matteo, 2018. "Benefits and costs of a higher bank “leverage ratio”," Journal of Financial Stability, Elsevier, vol. 38(C), pages 37-52.
    5. Eric A. Posner & E. Glen Weyl, 2014. "Benefit-Cost Paradigms in Financial Regulation," The Journal of Legal Studies, University of Chicago Press, vol. 43(S2), pages 1-34.
    6. Ewens, Michael & Xiao, Kairong & Xu, Ting, 2020. "Regulatory Costs of Being Public: Evidence from Bunching Estimation," SocArXiv pdv8n, Center for Open Science.
    7. Gadi Barlevy, 2015. "Bubbles and Fools," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II.
    8. Niclas Berggren & Christian Bjørnskov, 2019. "Regulation and government debt," Public Choice, Springer, vol. 178(1), pages 153-178, January.
    9. Eduardo Dávila, 2023. "Optimal Financial Transaction Taxes," Journal of Finance, American Finance Association, vol. 78(1), pages 5-61, February.
    10. Meraj Allahrakha & Jill Cetina & Benjamin Munyan & Sumudu Watugala, 2019. "The Effects of the Volcker Rule on Corporate Bond Trading: Evidence from the Underwriting Exemption," Working Papers 19-02, Office of Financial Research, US Department of the Treasury.
    11. Francesco Trebbi & Kairong Xiao, 2015. "Regulation and Market Liquidity," NBER Working Papers 21739, National Bureau of Economic Research, Inc.
    12. Katharina Hombach & Thorsten Sellhorn, 2019. "Shaping Corporate Actions Through Targeted Transparency Regulation: A Framework and Review of Extant Evidence," Schmalenbach Business Review, Springer;Schmalenbach-Gesellschaft, vol. 71(2), pages 137-168, May.
    13. Ingo Fender & Ulf Lewrick, 2016. "Adding it all up: the macroeconomic impact of Basel II and outstanding reform issues," BIS Working Papers 591, Bank for International Settlements.
    14. Buch, Claudia M. & Vogel, Edgar & Weigert, Benjamin, 2018. "Evaluating macroprudential policies," ESRB Working Paper Series 76, European Systemic Risk Board.
    15. Ellig, Jerry, 2016. "Improvements in SEC Economic Analysis since Business Roundtable: A Structured Assessment," Working Papers 07002, George Mason University, Mercatus Center.
    16. Francesco Trebbi & Kairong Xiao, 2019. "Regulation and Market Liquidity," Management Science, INFORMS, vol. 67(5), pages 1949-1968, May.
    17. Laux, Christian, 2016. "The economic consequences of extending the use of fair value accounting in regulatory capital calculations: A discussion," Journal of Accounting and Economics, Elsevier, vol. 62(2), pages 204-208.

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