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The efficiency of regulatory arbitrage

  • Vlad TarkoEmail author
  • Andrew Farrant
Article

Abstract

Classic public choice skepticism about the regulatory state, based on theories of rent-seeking, rent extraction and regulatory capture, is based on the unrealistic, and usually unstated, assumption of a monopolist regulator. In practice, the regulatory state is polycentric, involving numerous quasi-independent agencies with overlapping responsibilities. This has led to a more optimistic picture based on the idea of regulatory arbitrage: when firms can, to some extent, pick and choose their preferred regulator, regulatory agencies are constrained to deliver relatively efficient regulatory policies. In our view, this optimism is also unrealistic. We build a family of models that explores the possible regulatory outcomes, and use some aspects of Gordon Tullock’s critique of the common law as a conceptual foundation for the analysis of the efficiency of a polycentric regulatory system.

Keywords

Regulatory capitalism Polycentricity Common law Rent-seeking Certification markets 

JEL Classification

D72 H77 P16 

Notes

Acknowledgements

We thank Jerry Ellig, Patrick McLaughlin, Matt Mitchell, and William Shughart II for very useful feed-back and suggestions.

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© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Economics DepartmentDickinson CollegeCarlisleUSA

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