Upcoming Webinars
The Quiet Hand of Regulation: Harnessing Uncertainty and Disagreement
Daniel Andrei and Lorenzo Garlappi
December 4, 2025
Seminar: 12:00 pm - 1:00 pm ET
Virtual Coffee Break: 1:00 pm - 1:30 pm ET
Abstract: Regulating externalities is a major challenge when economic agents face uncertainty and disagreement. Traditional Pigouvian and Coasean approaches often struggle because they require either precise knowledge of externality costs or frictionless bargaining. We propose an “uncertainty-based regulation” (UBR) mechanism that leverages both uncertainty and firms’ heterogeneous information to achieve socially efficient outcomes without requiring disclosure of private information. UBR works by creating a fictitious market where firms’ incentives are aligned with social objectives through a simple, state- contingent transfer rule. This framework provides a Coasean solution that internalizes the externality. We show that the equilibrium allocation induced by UBR is team efficient, dominates traditional regulatory tools, incentivizes information acquisition, and remains robust even when firms distrust each other’s private information. Moreover, if brought to a vote, it would receive unanimous support, making it politically viable.