Association for Public Policy Analysis & Management

Countries seeking to enhance their competitiveness must find innovative ways to finance development projects. International bond markets are viable options. However, accessing them requires governments to harmonize core aspects in their securities regulations. This article focuses on rules aimed at protecting investors and reducing information asymmetries in Mexican and US municipal bond markets. The study uses carefully constructed hypothetical scenarios (vignettes) to analyze how exogenously set regulations modify risk perceptions among graduate students playing the role of portfolio managers considering investment opportunities in international municipal bonds, and who are bound by different regulations and institutional scenarios. The (expected) findings show that the willingness of investors to purchase bonds issued by a foreign jurisdiction increases, when rules in the issuing country are similar to those in their home countries. This study sheds light on the causal connection among alternative rule settings, investors’ behavior, and the expected outcomes of regulatory reforms to securities regulations across countries. It also adds to ongoing discussions on international financial regulation by introducing a behavioral lens to regulatory analysis and design.