Investor protection and the costs of public policy failure

Competitive markets respond automatically to change. Corrective forces are delivered by the pricing mechanism, where price changes indicate new allocations in the consumption of economic resources. Those market participants that are unable to respond adequately to change fail, resulting in a restructuring of the marketplace. Such failures are necessary in order to prevent a misallocation of scarce resources. Public policies, by attempting to suppress or eliminate the dynamic corrective processes of competitive markets, may lead to significant distortions in the marketplace. Using the collapse of the American Savings and Loan Industry as a case study, this paper analyses the distortions that may arise in the provision of financial services as a consequence of misguided public policy. While it is recognised that there may be scope for some public sector involvement in the financial sector of an economy, the overriding theme is that the goal of financial stability would best be served by actively promoting the corrective forces of private, competitive markets.

Grantor dc:publisher.institution

School of Economics

Year dc:date.issued

1993

Author dc:creator

• Steward, Chris

Advisor dc:contributor.advisor

• Hugh, H S

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/11427/13843

OAI identifier oai:identifier

oai:open.uct.ac.za:11427/13843