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Allowing insider trading brings along with itself a whole slew of perverse incentives. The biggest by far is that most categories of 'insiders' are also in a po
by lmkg 13y ago
Allowing insider trading brings along with itself a whole slew of perverse incentives. The biggest by far is that most categories of 'insiders' are also in a position to materially impact the value of companies. Parties like tax auditors, advisory services around mergers & acquisitions, management consulting, that sort of thing. Insider trading is therefore partially a protection against conflict-of-interest.
- anon1385 13y agoWhat you are talking about broadly is Control Fraud[1]. One of the most startling things about mainstream (neoclassical) economic theories is that they implicitly make the assumption that control fraud doesn't exist[2]. Yet it has been the cause of many recent high profile crises [3][4][5]. So when you see people talking about how insider trading can't ever be bad, and how executive interests are always aligned with public good, keep in mind that those people are living in a fantasy world where Enron never happened. [1] https://en.wikipedia.org/wiki/Control_fraud https://en.wikipedia.org/wiki/Control_fraud [2] http://neweconomicperspectives.org/2013/07/discrediting-regulation-from-george-stigler-to-tysons-fraud-free-carbon-tax-fantasy.html http://neweconomicperspectives.org/2013/07/discrediting-regu... [3] https://en.wikipedia.org/wiki/Savings_and_Loan_Crisis https://en.wikipedia.org/wiki/Savings_and_Loan_Crisis [4] https://en.wikipedia.org/wiki/Enron https://en.wikipedia.org/wiki/Enron [5] https://en.wikipedia.org/wiki/Worldcom https://en.wikipedia.org/wiki/Worldcom