Research Details

Abstract

Financial regulators must consider the benefits and limitations of pilot studies when pursuing evidence-based decision-making. Although pilot studies may generate new knowledge, they are expensive and often flawed by serious selection and spillover problems. Instead, regulators can often effectively evaluate a proposed regulation’s potential impact by analyzing archival data or applying theory based on well-accepted economic principles. We discuss why regulators and industry participants sometimes call for pilot studies with little scientific value. We conclude with recommendations for regulators concerning the use of pilot studies in financial regulation. We illustrate our discussion with references to various SEC pilot studies.

Type

Working Paper

Author(s)

Robert L. McDonald, Lawrence Harris, charles kahn, Chester Spatt

Date Published

2022

Citations

McDonald, Robert L., Lawrence Harris, charles kahn, and Chester Spatt. 2022. The role of pilot studies in financial regulation.