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The Institutional Framework for Cost-Benefit Analysis in Financial Regulation: A Tale of Four Paradigms?

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  • Robert P. Bartlett III

Abstract

This paper analyzes the institutional framework that has historically governed the cost-benefit analysis (CBA) of financial regulation. Although U.S. financial regulators are often portrayed as being immune from CBA, the paper shows how each major regulator has historically used CBA under one of four distinct institutional paradigms. The existence of these distinct paradigms highlights that a formal CBA requirement need not lead to regulatory paralysis, but the uneven application of CBA they engender provides reason to believe that this institutional framework is far from ideal. To the extent that the goal of CBA is to provide meaningful, transparent analysis of rule making while avoiding regulatory paralysis, the paper argues in favor of moving toward a more uniform institutional framework for financial regulation. In particular, adopting a single CBA paradigm that requires interagency coordination but avoids judicial review provides the greatest promise for achieving this goal in financial regulation.

Suggested Citation

  • Robert P. Bartlett III, 2014. "The Institutional Framework for Cost-Benefit Analysis in Financial Regulation: A Tale of Four Paradigms?," The Journal of Legal Studies, University of Chicago Press, vol. 43(S2), pages 379-405.
    • Handle: RePEc:ucp:jlstud:doi:10.1086/677325
    DOI: 10.1086/677325
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    References listed on IDEAS

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    1. Revesz, Richard & Livermore, Michael, 2008. "Retaking Rationality: How Cost Benefit Analysis Can Better Protect the Environment and Our Health," OUP Catalogue, Oxford University Press, number 9780195368574.
    2. Eric Posner & E. Glen Weyl, 2013. "Benefit-Cost Analysis for Financial Regulation," American Economic Review, American Economic Association, vol. 103(3), pages 393-397, May.
    3. repec:reg:rpubli:299 is not listed on IDEAS
    4. De Mesquita, Ethan Bueno & Stephenson, Matthew C., 2007. "Regulatory Quality Under Imperfect Oversight," American Political Science Review, Cambridge University Press, vol. 101(3), pages 605-620, August.
    5. Jeffrey N. Gordon, 2014. "The Empty Call for Benefit-Cost Analysis in Financial Regulation," The Journal of Legal Studies, University of Chicago Press, vol. 43(S2), pages 351-378.
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    Cited by:

    1. Matthew Spitzer & Eric Talley, 2014. "On Experimentation and Real Options in Financial Regulation," The Journal of Legal Studies, University of Chicago Press, vol. 43(S2), pages 121-149.
    2. Christian Leuz & Peter D. Wysocki, 2016. "The Economics of Disclosure and Financial Reporting Regulation: Evidence and Suggestions for Future Research," Journal of Accounting Research, Wiley Blackwell, vol. 54(2), pages 525-622, May.
    3. Jeffrey N. Gordon, 2014. "The Empty Call for Benefit-Cost Analysis in Financial Regulation," The Journal of Legal Studies, University of Chicago Press, vol. 43(S2), pages 351-378.
    4. Ellig, Jerry, 2016. "Improvements in SEC Economic Analysis since Business Roundtable: A Structured Assessment," Working Papers 07002, George Mason University, Mercatus Center.
    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.

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