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Regulation of trades based on differences in beliefs

Author

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  • Crès, Hervé

    (New York University in Abu Dhabi)

  • Tvede, Mich

    (Newcastle University)

Abstract

Some trades based on differences in beliefs might cause more harm than good. Should they be restricted? If yes, how? We propose three limits on regulation aimed at protecting beneficial trades: Unanimity – the regulator should not object to trades with identical beliefs; Autarky – if the regulator does not object to two unrelated trades, both with identical beliefs, then it should not object to the mere juxtaposition of the trades; and, Independence of Irrelevant Agents – the regulator should consider solely the agents involved in the trade. We show that there is a unique policy within these three limits : Laissez-faire.

Suggested Citation

  • Crès, Hervé & Tvede, Mich, 2016. "Regulation of trades based on differences in beliefs," CRETA Online Discussion Paper Series 26, Centre for Research in Economic Theory and its Applications CRETA.
    • Handle: RePEc:wrk:wcreta:26
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    File URL: https://warwick.ac.uk/fac/soc/economics/research/centres/creta/papers/manage/26_-_creta_tvede.pdf
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    References listed on IDEAS

    as
    1. Blume, Lawrence E. & Cogley, Timothy & Easley, David A. & Sargent, Thomas J. & Tsyrennikov, Viktor, 2018. "A case for incomplete markets," Journal of Economic Theory, Elsevier, vol. 178(C), pages 191-221.
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    Cited by:

    1. Philippe Mongin & Marcus Pivato, 2020. "Social preference under twofold uncertainty," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 70(3), pages 633-663, October.

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    More about this item

    Keywords

    heterogeneous beliefs ; Pareto efficiency ; regulation ; speculative trading. JEL classification numbers: D51 ; D69;
    All these keywords.

    JEL classification:

    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D69 - Microeconomics - - Welfare Economics - - - Other

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