This paper models the specialist system as a monopolistically competitive market. Demand for the asset is found by solving the investor's portfolio problem with transactions costs. These demand equations are used as inputs in the specialist's price-setting problem. Equilibrium prices and, hence,...

We study the design of enforcement mechanisms when enforcement resources are chosen ex ante and are inelastic ex post. Multiple equilibria arise naturally. We identify a new answer to the old question of why non-maximal penalties are used to punish moderate actions: "marginal" penalties are much...

Financial market regulations require various quot;insidersquot; to disclose their trades after the trades are made. We show that such mandatory disclosure rules can increase insiders' expected trading profits. This is because disclosure leads to profitable trading opportunities for insiders even...

Investment advisory firms and brokerage firms hire analysts to uncover profitable securities investment opportunities. Then these firms sell the information (either directly or indirectly) to others. Why? Given that the information has value, why do these firms not keep the information to...

Self-regulation is a feature of a number of professions. For example, in the U.S. the government delegates aspects of financial market regulation to self-regulatory organizations (SROs) like the New York Stock Exchange and the National Association of Securities Dealers. We analyse one regulatory...