Which of the following statements is true?
A)Since regulators are concerned with the social cost of a failure, regulatory models will normally tend to be more conservative than private sector models that are concerned only with the private costs of failure.
B)Since regulators are concerned with the social cost of a failure, regulatory models will normally tend to be less conservative than private sector models that are concerned only with the private costs of failure.
C)Regulators and private firms are both concerned with the social cost of a failure and thus their models do not differ.
D)None of the listed options are correct.

Question

Quizplus · Accepted Answer

Regulators are concerned with the social cost of a failure, which means they consider the impact of a failure on the broader society. This typically leads to more conservative regulatory models, as regulators are more risk-averse when it comes to potential harm to society. In contrast, private sector models are concerned only with the private costs of failure, meaning they focus on the individual company's financial loss. As a result, private sector models are often less conservative than regulatory models.

Which of the Following Statements Is True