Insider Trading: Regulation, Deregulation, and Taxation

Abstract

I consider in this paper the impact of insider trading regulation (ITR) on a securities market and on social welfare, and suggest that society would be better off if ITR were eliminated. In addition, acknowledging that such an abrupt change in policy is not likely to be made, at least in the short run, I propose two alternative policies, both consisting of allowing insider trading and imposing a redistributive scheme. To conclude, I outline the elements of an optimal policy toward insider trading. The paper is aimed to lawmakers and regulatory agencies and, therefore, it is a non-mathematical manuscript.

JEL Classification: G18