Premium
Unitary regulatory supervision or multi‐entity supervision? A computational approach to a numbers problem in financial regulation
Author(s) -
Cole Benjamin M.,
Banerjee Preeta M.
Publication year - 2010
Publication title -
regulation and governance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.417
H-Index - 45
eISSN - 1748-5991
pISSN - 1748-5983
DOI - 10.1111/j.1748-5991.2010.01089.x
Subject(s) - unitary state , scholarship , accounting , business , regulatory authority , computer science , political science , public administration , law
Policymakers globally have debated (and often implemented) the idea of consolidating numerous financial regulatory supervisory entities into one unitary entity. This article uses a computational model to explore the effect such a decision would have on supervisory performance. Using insights from organizational scholarship on consensus‐making among individuals within organizations, the simulation suggests that under most conditions a unitary supervisory entity yields lower performance than smaller, numerous entities with unique mandates, keeping the number of regulatory inspectors constant. This result arises from the heterogeneity of perspectives being shared within the entity and the influence of precedent actions. The results also show a decreasing utility to disaggregation: performance decreases when too few inspectors share among themselves in building consensus. When insufficient heterogeneity within supervisors exists, unitary frameworks outperform multi‐entity frameworks. These findings have implications on the design of supervisory frameworks and contribute to research on consensus‐building, heterogeneous group membership, and computational modeling.