Many markets are regulated for paternalistic reasons. We develop a mechanism-design framework that derives the optimal policy mix among price regulation, quantity controls, and prohibition. A planner allocates trade between privately informed buyers and sellers while disagreeing with their valuations. When the planner’s assessment preserves the ranking of agents, price instruments (e.g., sin taxes) are optimal. When willingness to trade instead signals bias, optimal regulation can restrict quantities or even prohibit transactions despite gains from trade. Behavioral interventions (e.g., nudges) offer two benefits: they improve selection into markets, and raise demand or supply for goods that are insufficiently traded.

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