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Edited by Alessio M. Pacces

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Alessio M. Pacces

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Alessio M. Pacces

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Edited by Alessio M. Pacces

In this timely book, the law and economics of corporate governance is approached from various angles. Alessio Pacces shows that perspectives are evolving and that they differ between the economic and the legal standpoint, as well as varying between countries. A group of leading scholars offers their views and provides fresh empirical evidence on existing theories as well as developing new theoretical insights based on empirical puzzles. They all analyse the economics of corporate governance with a view to how it should, or should not, be regulated.
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Alessio M. Pacces

The goal of this chapter is to determine whether law and economics can be normative, namely inform policymakers about which legal rules are desirable for society. A review of the law and economics movement reveals three challenges. First, efficiency is not always sufficient to choose among legal rules (the efficiency vs. equity problem). Second, the knowledge of the effects of legal rules may be too limited to achieve efficiency (the policy problem). Third, the incentives underlying lawmaking may undermine the quest for efficiency (the political economy problem). It is argued that these challenges can be overcome if law and economics asks the right questions. Law and economics should be concerned with questions that can be answered based on efficiency as measurable outcome. The quest for rules supporting economic growth is one such question. A focus on economic growth can arguably temper the conflict between efficiency and equity of law, thanks to the magnitude of resources that growth makes potentially available for redistribution and other socially valuable goals. Moreover, economic growth can be measured by objective indicators, implying that both a commitment to policies and their impact can be tested. Measurability of policy outcomes allows disciplining theorists, with respect to the means to achieve certain ends, and policymakers, with respect to the ends underlying the choice of means.

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Dirk Heremans and Alessio M. Pacces

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Hossein Nabilou and Alessio M. Pacces

This chapter deals with the economic rationale for regulating shadow banking. It discusses whether the regulatory initiatives proposed by academics and policymakers are consistent with this rationale. We posit that the ultimate goal of financial regulation is to promote financial stability. Therefore, we evaluate shadow banking regulation based on its ability to reduce financial instability efficiently. Regulating shadow banking is challenging because shadow banking is often defined by reference to what it is not, namely, licensed or official banking. However, such an approach does not capture the essence of the shadow banking problem. The official banking system has implicitly or explicitly supported a significant part of what is known today as shadow banking. For instance, the asset backed commercial paper (ABCP) conduits or the structured investment vehicles (SIV), which were exposed to the United States (US) housing market during the global financial crisis (GFC), all enjoyed guarantees by banks – so-called ‘put options’ – by way of contract or reputation. The remainder of shadow banking was still problematic for financial stability because of the contracts in which shadow banks were counterparty to banks. American International Group (AIG), for instance, was counterparty to a significant part of the banking system relying on credit default swaps (CDS) to insure against the default of mortgage-backed securities (MBS).

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Roger J. Van den Bergh and Alessio M. Pacces

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Alessio M. Pacces and Roger J. Van den Bergh