Take it slowly February 21, 2013 at 6:43 am

Good sense on regulatory change from Charles Whitehead:

This Article argues that a better approach to new financial risk regulation is to introduce it in stages… Regulators should be authorized to phase-in or forego additional regulation over time as it becomes clear, through experience, what the likely impact will be… [This] approach relies on real options to introduce new regulation. The use of real options in the transactional world is based on the insight that it can be valuable for managers to adjust their strategies based on new information they acquire over time rather than commit to a rigid approach initially.

The choice of regulation, of course, is not irreversible. A poor decision, or a new rule with unanticipated consequences, can be reversed at a later stageā€”but, potentially, at significant expense. By staging implementation, regulators can develop additional information on the effect of new rules on market conduct, potentially at lower cost than a subsequent change in regulation.

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