June 20, 2011
Regulation By Reputation
Posted by David Zaring

I just presented a paper with the above title at INSEAD.  The motivating question was how, and whether, reputation can act as a force multiplier in matters regulatory and legal.  It is often posited as such - the SEC points to risks to reputation as one of the reasons it does such a good job supervising broker-dealers.  Andrew Guzman argues that states comply with international law, even though they do not have to, because they value their reputation.  Jeffrey Lax posits that Supreme Court justices vote strategically partly to build reputations.  &c.

Can reputation explain legal compliance and regulatory effectiveness?  

Sometimes it looks like a classic economist copout.  If you can't figure out why something is priced the way it is, just posit a pre-existing taste for it.  But I think there may be something to reputation, though it is like other hard-to-price phenomena - esprit de corps, social we feeling, for example - that we all know exist but don't easily lend to a dollars and sense analysis.

Anyway, that's what I was thinking during the talk, which built off Daniel Carpenter's reputation oriented study of the FDA.  If you've got good examples of the use of reputation in corporate law, do point me to them in the comments.

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