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Report
Insider networks
How do insiders respond to regulatory oversight? History suggests that they form sophisticated networks to share information and circumvent regulation. We develop a theory of the formation and regulation of information transmission networks. We show that agents with sufficiently complex networks bypass any given regulatory environment. In response, regulators employ broad regulatory boundaries to combat gaming, giving rise to regulatory ambiguity. Tighter regulation induces agents to migrate transmission activity from existing social networks to a core-periphery insider network. A small group ...
Working Paper
Civil Liberties and Social Structure
Governments use coercion to aggregate distributed information relevant to governmental objectives—from the prosecution of regime-stability threats to terrorism or epidemics. A cohesive social structure facilitates this task, as reliable information will often come from friends and acquaintances. A cohesive citizenry can more easily exercise collective action to resist such intrusions, however. We present an equilibrium theory where this tension mediates the joint determination of social structure and civil liberties. We show that segregation and unequal treatment sustain each other as ...
Discussion Paper
Insider Networks
Modern-day financial systems are highly complex, with billions of exchanges in information, assets, and funds between individuals and institutions. Though daunting to operationalize, regulating these transmissions may be desirable in some instances. For example, securities regulators aim to protect investors by tracking and punishing insider trading. Recent evidence shows that insiders have formed sophisticated networksthat enable them to pursue activities outside the purview of regulatory oversight. In understanding the cat-and-mouse game between regulators and insiders, a key consideration ...
Report
Financial System Architecture and Technological Vulnerability
This paper presents a framework to study of technological resiliency of financial system architecture. Financial market infrastructures, or platforms, compete with services critical functions along various stages in the lifecycle of a trade, and make investments in technological resiliency to guard against attackers seeking to exploit system weaknesses. Platforms’ financial network effects attenuate competition between platforms on security. Exposure to vulnerabilities is magnified in the presence of strategic adversaries. Private provision of technological resiliency is generally ...