Justifying insider trading
Greg Mankiw apparently thinks insider trading is a good idea...at least, he links approvingly to this defence of it by Donald Boudreaux in the Wall Street Journal [ An analysis of Greg Mankiw's clever "link deniability" strategy is coming in another posting ]. An intriguing notion. It is broadly based on the idea that information is going to be hidden by companies anyway, so we may as well hope that insiders accidentally give it away by buying and selling stock. Doesn't that seem rather defeatist? If public companies aren't providing the right information to investors, so the investors can't make accurate decisions, shouldn't we find a mechanism to make them do so? Insider trading, because it enriches executives at the expense (at least in the short term) of other investors, destroys the trust which is a key variable in how well capital markets work. There is always an agency problem inherent in one person managing an asset on behalf of another. Trust is ...