Rules and Enforcement - 2
This note is a new version of the one already released this year making a conceptual analysis of what the author developed in detail in his 2012 paper dealing with crises and economic models. It re-emphasizes the need to introduce into the discussion the question of the moral behavior of economic agents and the institutional designs that define the scenario of their actions. It attempts an explanation why ergodic theory poses limitations to possible predictions, while insisting on the need for the introduction of formal regulation rules in financial markets and fiscal and monetary rules for governments. Finally suggests that the trade off between free market and regulation, faces a serious dilemma, due to existing of an incomplete financial market with strong managing information asymmetries between those who manage funds in financial entities and citizens who deposited these funds in those entities, but at the same time, regulation will also faces an imperfect market, perhaps the most imperfect of all markets, which is the agency contract between representatives and citizens.
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