Regulation of trades based on differences in beliefs

Crès, Hervé and Tvede, Mich (2018) Regulation of trades based on differences in beliefs. European Economic Review, 101. pp. 133-141. ISSN 0014-2921

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Abstract

Some trades based on differences in beliefs might cause more harm than good. Should they be restricted? If yes, how? We propose three properties ensuring that regulation does not prevent beneficial trade and is consistent: Unanimity – the regulator should not object to trades with identical beliefs; Merge-Proofness of Autarky – if the regulator does not object to finitely many unrelated trades, all with identical beliefs, then it should not object to the mere juxtaposition of the trades; and Independence of Irrelevant Trade – if the regulator does not object to the juxtaposition of two unrelated trades, then it should not object to any of the two trades standing alone. We show that there is a unique policy having these three properties, namely laissez-faire.

Item Type: Article
Uncontrolled Keywords: heterogeneous beliefs,pareto efficiency,regulation,speculative trading
Faculty \ School: Faculty of Social Sciences > School of Economics
Depositing User: Pure Connector
Date Deposited: 05 Oct 2017 05:08
Last Modified: 19 Aug 2020 23:56
URI: https://ueaeprints.uea.ac.uk/id/eprint/65046
DOI: 10.1016/j.euroecorev.2017.10.001

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