One proposal for improving the rating agencies

…Levy and Peart propose a simple solution: randomization. 
Rotate ratings firms the way that baseball rotates umpires. 
If they were assigned by lottery, rating agencies would have enhanced incentives to take the public interest into account — and diminished incentives to try to please underwriting institutions that were paying the bills.  Something of the sort was incorporated among the reforms mandated for accounting firms by the Sarbanes-Oxley Act of 2002 — the rotation every five years of the lead audit partner and the reviewing audit partner was required, for example, and more frequent changes of firms themselves was recommended. But the measures stopped well short of randomization.

Here is the full discussion.  Yes that Levy is my colleague David Levy, who has been a major influence on our department, most of all through his book The Economic Ideas of Ordinary People.


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