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Optimization and Its Discontents in Regulatory Design: Bank Regulation as an Example

Citation

Publication Date: 
January 08, 2010
Format: 
Working Paper
Bibliography: William H. Simon, Optimization and Its Discontents in Regulatory Design: Bank Regulation as an Example, Columbia Public Law Research Paper No. 10-224 (2010).

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Economists and economically-trained lawyers tend to speak about regulation from a perspective organized around the basic norm of optimization. By contrast, an important managerial literature espouses a perspective organized around the basic norm of reliability. The perspectives are not logically inconsistent, but the economist’s view sometimes leads in practice to a preoccupation with decisional simplicity and cost minimization at the expense of complex judgment and learning. Drawing on a literature often ignored by economists and lawyers, I elaborate the contrast between the optimization and reliability perspectives. I then show how it illuminates current discussions of the reform of bank regulation.