The debate over the economic rationale for investor protection regulation: a critical appraisal
| Published date | 31 July 2007 |
| Pages | 236-249 |
| Date | 31 July 2007 |
| DOI | https://doi.org/10.1108/13581980710762255 |
| Author | Andromachi Georgosouli |
| Subject Matter | Accounting & finance |
The debate over the economic
rationale for investor protection
regulation: a critical appraisal
Andromachi Georgosouli
International Financial Law Unit, Centre for Commercial Law Studies,
Queen Mary University of London, London, UK
Abstract
Purpose – This paper is concerned with the application of economic analysis to law and public
policy. Its aim is not to highlight the well-documented merits of economic analysis but to shed light on
some of its flaws and to propose an agenda for future research in the field.
Design/methodology/approach – The paper takes as a case study the debate over the economic
rationale for investor protection regulation.
Findings – The paper discusses the main economic arguments for and against regulation and
explains why arguments of this type are weaker than commonly thought.
Originality/value – The paper reviews the main arguments for and against the economic rationale
for investor protection regulation and identifies the economic reasoning entrenched in the arguments
of both sides of the debate, spells out its shortcomings and proposes an agenda for future research.
Keywords Investors, Regulation, Cost benefit analysis
Paper type Research paper
1. Introduction
There are several reasons why economic analysis dominates the field of law and public
policy. For one thing, economics has considerable explanatory power. As Posner (1986,
p. 26) points out the “demand for justice is not free of its price” and economics can
provide value clarification “by showing the society what it must give up to achieve an
uneconomic ideal of justice”. Furthermore, economics prescribes what should be a
proper mode of action in a manner that is simple and free from the assumed
ambiguities of moral discourse (Williams, 1998, p. 136; Hausman and McPherson, 2003,
p. 106). Moreover, its emphasis on the consequences of policy choice to the community
as a whole and the fact that it embraces the idea that people’s preferences deserve to be
equally weighted in policy-making suggests that its prescriptions fit well with our
intuitions about what would count as a sound policy in the public domain (Sen and
Williams, 2002, pp. 2-3).
This essay is concerned with the application of economic analysis to law and public
policy. Its aim is not to highlight the well-documented merits of economic analysis but
to shed light on some of its flaws and to propose an agenda for future research in the
field. To this effect, the essay takes as a case study the debate over the economic
rationale for investor protection regulation. It reviews the main economic arguments
for and against regulation and explains why arguments of this type are weaker than
commonly thought.
It is argued that both adherents and opponents of regulation agree that qualitative
uncertainty is a persistent threat to consumer interests. However, they disagree on
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1358-1988.htm
JFRC
15,3
236
Journal of Financial Regulation and
Compliance
Vol. 15 No. 3, 2007
pp. 236-249
qEmerald Group Publishing Limited
1358-1988
DOI 10.1108/13581980710762255
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