Insider trading with penalties

We consider a Kyle (1985) one-period model where insider trading may be subject to penalty that is increasing in trade size. characterize the solution - equilibrium price and optimal strategy explicitly establish existence uniqueness for an arbitrary function case of uniformly distributed noise. use this framework capture difference between legal illegal trading, identify set ‘efficient functions’ would regulator seeks minimize expected uninformed traders' losses given level informativeness. Simple policies consisting fixed upon nonzero trades belong can used implement any efficient outcome. Using numerical analysis, we show robustness our results different distributional assumptions.