Regulation and Scholarship: Constant Companions or Occasional Bedfellows?

Abstract

When does original academic scholarship about the law and capital markets influence financial regulation? We suggest that capital market regulators often are driven by scholarly findings in the fields of finance and law to launch important new regulatory initiatives. However, we argue that private political motivations rather than the public interest drive policymakers' decisions about when to heed-and when to ignore-relevant social science evidence. We support our thesis with six examples of situations in which scholarship was, or arguably should have been, the catalyst that launched a major regulatory initiative. In three of these examples policymakers decided to regulate, and in three other contexts policymakers chose to ignore completely equally powerful social scientific evidence.