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...

The federal government delegates various aspects of financial market regulation to self-regulatory organizations (SROs) such as the New York Stock Exchange and the National Association of Securities Dealers. We model one regulatory task of an SRO, the enforcement of rules designed to prevent the...

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...

Numerous rules mandate the disclosure of sellers' information. This article analyzes two questions regarding disclosure: (i) Why wouldn't sellers voluntarily disclose their information? and (ii) Who gains and who loses with mandatory disclosure? Previous analyses assume that all customers are...

We analyze several aspects of the debate on insider trading regulations. Critics of such regulations cite various benefits of insider trading. One prominent argument is that insider trading leads to more informationally efficient stock prices. We show that under certain circumstances, insider...

type="main" xml:lang="en" <title type="main">ABSTRACT</title> <p>This paper develops a model of the relationship between investment decisions by firms and the efficiency of the market prices of their securities. It is shown that more efficient security prices can lead to more efficient investment decisions. This provides...</p>