
Contents
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Market Efficiency Market Efficiency
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Market Efficiency Defined Market Efficiency Defined
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Mechanisms of Market Efficiency Mechanisms of Market Efficiency
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Modern Perspectives Modern Perspectives
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Regulatory Implications Regulatory Implications
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Market Failures: Justifications for Intervention Market Failures: Justifications for Intervention
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Information as a Public Good Information as a Public Good
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Exclusivity and Dominant Market Share Exclusivity and Dominant Market Share
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Agency Costs Agency Costs
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Asymmetry of Sophistication or Access Asymmetry of Sophistication or Access
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Regulatory Failure: The Case for Restraint Regulatory Failure: The Case for Restraint
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Institutional Incentives Institutional Incentives
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Institutional Competence Institutional Competence
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Institutional Design Institutional Design
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Information Policy and the Financial Crisis Information Policy and the Financial Crisis
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Cite
Abstract
This chapter considers the theoretical aims of information regulation and the arguments for and against regulatory intervention in the information production chain. It relates the conceptual framework that Fama’s efficient capital markets hypothesis and Gilson and Kraakman’s mechanisms of market efficiency provide policy makers in considering how to regulate information dissemination and informed trading in capital markets. It further describes how behavioral finance and market microstructure theory have challenged that framework. It then considers the common types of market failure that justify regulatory intervention—underinvestment in public goods, dominant market share, agency costs, asymmetry of sophistication and access—while also discussing how public choice theory and regulatory failures may counsel restraint. The chapter ends with a discussion of market failures and regulatory failures in information policy that contributed to the recent financial crisis.
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