Statement on Evidence-Based Regulation and the Limits of Pilot Studies
Financial regulators, when pursuing the goals of evidence-based decision making, should recognize both the benefits and limitations of the use of regulatory pilot studies. While pilot studies have potential to generate new knowledge about financial markets, regulators often can effectively evaluate the potential impact of a proposed regulation by analyzing archival data obtained from other markets or from similar situations in the past. They also can apply theory based on well-accepted economic principles.
We discuss why regulators and industry participants sometimes call for pilot studies that have little scientific value. We discuss some limitations of pilot studies that regulators should consider before proposing them. Finally, we conclude with a set of recommendations concerning the use of pilot studies in financial regulation.
