The Incentives of Regulators

In a guest article for The Economist (Oct. 3, 2009, p. 94), Beatrice Weder di Mauro, a member of the German Council of Economic Experts, points to the importance of more closely aligning the interests of regulatory agencies with the common weal. She calls, basically, for more central bank-like independence for all types of regulatory agencies. When it comes to the incentives of regulators, to wit the individuals who compose regulatory agencies, she proffers only "higher pay and a more prominent public profile." Apparently, she is not aware that almost a year ago I suggested paying regulators based on performance with a long-term deferred compensation system combining both bonus payments and malus deductions. See "How to Incentivise the Financial System,” Central Banking, 19, 2 (December 2008), 65-67.