Steve Bainbridge responds to my post about insider trading as compensation with a suggestion that rules against insider trading are an example of a case “where mandatory rules are appropriate.”
I was about to sputter about laws against insider trading are really about property rights, and surely property should be alienable — right? And about how this is really about fiduciary duties, and behind that agency costs, which is the heart of corporate law. So how much of the rest of corporate law should be made mandatory and federal?
Then I realized Steve was really talking about lawyers trading on clients’ information. Well, that’s different. Clients rarely authorize this, so it’s usually theft and therefore bad. But I still wonder why clients shouldn’t be allowed to authorize it. And who knows whether that might happen as lawyers’ roles evolve? (You knew I was going to stick that one in again, didn’t you?)
But after calming down I got riled up by the last line: “If investors have a taste for prohibiting insider trading, it thus does no good to say that the world would be a more efficient place if insider trading were allowed.”
Um, well, where does that sort of reasoning stop? People ought to be able to indulge a lot of seemingly goofy tastes. But that’s a long way from a normative argument that these tastes should be imposed on society.