Who should be responsible for industry regulation, a private self-regulatory agency or a public agency? This paper provides a simple framework to analyze the optimal scope of a private self-regulatory organization (SRO) versus government regulation. The trade-off depends on three key elements: externalities, monopoly distortions, and the degree of asymmetric information. Self-regulation is more desirable than government regulation if the degree of asymmetric information between the public regulator and private industry is larger than the size of the monopoly distortion and externalities from the industry to society. An optimal mechanism consists of both self-regulation and government regulation where an SRO internalizes externalities within the industry and the government corrects any distortions generated by the SRO. These insights can be applied to many practical settings and policy discussions—for example, in the context of the financial sector, as with the Financial Industry Regulatory Authority.

中文翻译：

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自我监管与政府监管：外部性观点

谁应该负责行业监管，私人自我监管机构或公共机构？本文提供了一个简单的框架来分析私人自我监管组织（SRO）与政府监管的最佳范围。权衡取决于三个关键要素：外部性，垄断扭曲和信息不对称程度。如果公共监管者与私营企业之间的信息不对称程度大于垄断扭曲的规模和从产业到社会的外部性，那么自我监管比政府监管更为可取。最佳机制包括自我监管和政府监管，其中SRO内部化了行业内部的外部性，而政府则纠正了SRO产生的任何扭曲。