The theory of quality regulation and self-regulation: Towards an application to financial markets

In this paper we review and extend the theory of quality regulation and of self-regulation and try to see to what extent the present theoretical literature can help to direct the regulatory reform of Italian financial markets. In financial markets, several countries have heavily relied upon self regulation (SR) essentially left to financial intermediaries, while others have preferred an approach more based on the intervention of a public agency; the two groups now seem to converge towards mixed systems. SR is likely to be a feasible alternative when the number of intermediaries is limited, the mobility of investors is high and the regulator's uncertainty on the firms' costs is substantial. However, to bridge the gap between theory and application still requires a remarkable effort