Complexity as a Catalyst of Market Failure

Steven L. Schwarcz, Duke University School of Law

Abstract

This article examines how the complexities of modern financial markets and investment securities can trigger market failure. The article also analyzes what steps, including possible regulation, should be taken to reduce the potential for failure. Because market complexities and failures are characteristic of complexities and failures in engineering systems with nonlinear feedback, the analysis draws on the literature analyzing those systems.