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Encyclopedia of Law and Economics pp 863–871Cite as

Financial Regulation

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Abstract

Financial markets do have special attributes which require regulatory intervention. They are complex markets which are abundant with asymmetric information, moral hazard, externalities, and agency problems. They are markets in which products mature over a long period of time causing a need for regulatory monitoring which is exacerbated by consumer demand for regulation and economies of scale in monitoring. Moreover, the financial firms in these markets are crucially important from a systemic point of view to the health of the economy in general. Having said all that, financial regulation is costly. Regulation in general should only be enacted if the costs of implementing it are lower than the benefits derived from what it seeks to achieve. Regulation is not about quantity but about quality. The “right” kind of regulation gives the financial institutions the incentives to act in a way which enhances social welfare and reduces market failures.

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Author information

Authors and Affiliations

  1. Faculty of Law, Hebrew University of Jerusalem, Jerusalem, Israel

    Hadar Yoana Jabotinsky

Authors
  1. Hadar Yoana Jabotinsky
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Corresponding author

Correspondence to Hadar Yoana Jabotinsky .

Editor information

Editors and Affiliations

  1. MRE and University of Montpellier, Montpellier, France

    Alain Marciano

  2. Faculté d’Economie, Université de Montpellier and LAMETA-UMR CNRS, Montpellier, France

    Alain Marciano

  3. DiGSPES, University of Eastern Piedmont, Alessandria, Italy

    Giovanni Battista Ramello

  4. IEL, Torino, Italy

    Giovanni Battista Ramello

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Jabotinsky, H.Y. (2019). Financial Regulation. In: Marciano, A., Ramello, G.B. (eds) Encyclopedia of Law and Economics. Springer, New York, NY. https://doi.org/10.1007/978-1-4614-7753-2_636

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