Writing a new chapter
By Ashley Rabinovitch
For an academic researcher, there are few things more exhilarating—or more nerve-racking—than taking the first few steps into uncharted territory. As a PhD student at New York University, Joseph Kalmenovitz stumbled upon his area of research unexpectedly.
He was learning about the incentive structures that shaped the decisions of CEOs when it occurred to him that there was a sizable population of regulators who must have similar sets of preferences and motivators.
“What happens inside regulatory bodies, from the SEC to the EPA, has implications for the entire economy, but very few economists were looking at the people who write and enforce rules,” he says. “I kept looking around and thinking I was missing some research, but there was almost nothing there.
Inspired by the opportunity to open a new chapter of literature, Kalmenovitz began writing his dissertation on the impact of promotion incentives on financial regulators. With that, a career in the economics of regulation was born.
Kalmenovitz’s background has prepared him to examine issues at the intersection of finance, law, and politics with an unusual degree of nuance and objectivity. Born and raised in Efrat, a small town outside of Jerusalem, he studied law and economics at The Hebrew University of Jerusalem with the goal of becoming a judge.
Upon graduation, he landed a coveted position as a law clerk for the Supreme Court of Israel. It was an intellectually satisfying role that he credits with strengthening his ability to “think logically and clearly, seeing an argument from beginning to end.” The experience also required him to remain impartial as he summarized arguments and drafted opinions on a wide range of constitutional, civil, and administrative questions.
“One of the reasons the study of regulatory economics in academia has been lagging for so many years is that most people approach it with a strong bias in favor of more or less regulation,” he says. “I try to leverage my training as a lawyer to approach these issues with a clean slate and let data talk.
During his time at the Supreme Court, Kalmenovitz realized that an academic path would afford more freedom to explore the intellectual boundaries of law than would joining a law firm. He initially envisioned pursuing a PhD in law, but a professor convinced him that a PhD in finance would better equip him with the statistical tools he needed to make a broader impact in his field. At that point, he had no inkling that his years as a lawyer were behind him—or that an equally rewarding career lay just ahead.
After completing his doctorate in 2020, Kalmenovitz was too intrigued by unanswered questions surrounding regulation to return to law. He spent two years as an assistant professor at Drexel University before joining Simon Business School in 2022.
“The primary draw of Simon was its longstanding tradition of rigorous quantitative analysis. It is a place that takes what it does seriously, in the best possible way.”
“The primary draw of Simon was its longstanding tradition of rigorous quantitative analysis,” he says. “It is a place that takes what it does seriously, in the best possible way.”
Now, as an assistant professor of finance at Simon, Kalmenovitz has redoubled his efforts to understand how regulations impact business decisions. Using natural language processing (NLP) and machine-learning techniques, Kalmenovitz scans thousands of pages of federal rules and converts text into numbers that represent compliance costs for individual companies. In a recent working paper, he and his co-authors uncover the economic costs associated with proposed rules that are not yet finalized. This is important, because on any given day federal regulators are working on fleshing out approximately 3,000 new rules.
Kalmenovitz also applies advanced statistical techniques to the study of regulators themselves, continuing the line of inquiry that first sparked his interest in graduate school. He is in the process of publishing a paper that identifies the impact of a one-year “cooling off” period imposed on federal regulators above a certain pay grade. By taking payroll data and plotting salary distributions, Kalmenovitz and his co-authors were able to identify which regulators are intentionally remaining at a pay grade just below the threshold that would prohibit them from moving to the private sector within a year of leaving the government. These employees, he demonstrated, are substantially less likely to initiate regulatory actions, reasoning that a laxer approach would make them more attractive candidates to potential employers.
"The dream is that people will take insights from my work and use them to improve the way regulation is conceived and government workers are organized and incentivized,” says Kalmenovitz. “In reality, though, you need determined political leadership to make that happen, and reforming federal payrolls is not on the radar of most politicians.”
Undeterred by the political dysfunction that muddies the waters of regulation, he continues onward, invigorated by the prospect of asking questions no one has asked before. Over time, his field has become less lonely. “It’s easier than it used to be to find co-authors,” he says. “I spend a good portion of my time sharing data with researchers from around the world who are interested in similar topics. Things are changing and moving in the right direction.”