Book contents
- Frontmatter
- Contents
- List of figures
- List of tables
- Preface
- List of conference participants
- Foreword
- 1 Introduction
- 2 Banking competition and European integration
- Discussion
- 3 Banking, financial intermediation and corporate finance
- Discussion
- 4 How (not) to integrate the European capital markets
- Discussion
- 5 European financial regulation: a framework for policy analysis
- Discussion
- 6 Corporate mergers in international economic integration
- Discussion
- 7 Capital flight and tax competition: are there viable solutions to both problems?
- Discussion
- 8 Reflections on the fiscal implications of a common currency
- Discussion
- 9 Currency competition and the transition to monetary union: does competition between currencies lead to price level and exchange-rate stability?
- 10 Currency competition and the transition to monetary union: currency competition and the evolution of multi-currency regions
- Discussion of chapters 9 and 10
- 11 Problems of European monetary integration
- Discussion
- Index
Discussion
Published online by Cambridge University Press: 04 August 2010
- Frontmatter
- Contents
- List of figures
- List of tables
- Preface
- List of conference participants
- Foreword
- 1 Introduction
- 2 Banking competition and European integration
- Discussion
- 3 Banking, financial intermediation and corporate finance
- Discussion
- 4 How (not) to integrate the European capital markets
- Discussion
- 5 European financial regulation: a framework for policy analysis
- Discussion
- 6 Corporate mergers in international economic integration
- Discussion
- 7 Capital flight and tax competition: are there viable solutions to both problems?
- Discussion
- 8 Reflections on the fiscal implications of a common currency
- Discussion
- 9 Currency competition and the transition to monetary union: does competition between currencies lead to price level and exchange-rate stability?
- 10 Currency competition and the transition to monetary union: currency competition and the evolution of multi-currency regions
- Discussion of chapters 9 and 10
- 11 Problems of European monetary integration
- Discussion
- Index
Summary
There are two market failure rationales for investor protection regulation: the negative externalities of systemic failure (e.g. bank runs) and the fact that many buyers are much less well informed than sellers about the quality of the services that they are buying. This asymmetric information problem has been recognized in a number of contexts, at least since the classic ‘lemons’ article by Akerlof (1970), and it is the focus adopted by Mayer and Neven in their analysis of European financial markets. They note that the problem for investors can be particularly acute, because it may be impossible to judge ‘quality’ – the honesty and skill of advice, dealing, fund management, etc. – even after purchse. Such services are known as ‘credence’ goods; other examples are professional services.
The asymmetric information perspective taken by Mayer and Neven is in my view very apt and much needed. Their analysis also leads them to conclusions that I support. My comments are in two parts – first, a few questions about the model, and second, some further discussion of the incentives of self-regulatory organizations to detect and expose wrongdoing.
A somewhat curious feature of the model in the text is that dishonest firms are caught with probability 1 (but will nevertheless cheat unless the fine plus their capital foregone outweighs the immediate gain) and that honest firms are deemed to have misbehaved with probability 1 − α (0 < α < 1). Higher capital requirements drive away both types of firms, but improve the trade-off between honest and dishonest firms because capital and quality are associated. A combination of lower fine and higher capital requirement can therefore have merit.
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- Information
- European Financial Integration , pp. 133 - 135Publisher: Cambridge University PressPrint publication year: 1991