Racing All Over the Place: a Tiebout Model of International Regulatory Competition

Abstract

The literature on the effect of globalization national regulatory standards tends to focus on one of two patterns, regulatory races to the bottom or upwards harmonization of regulatory standards. Neither pattern is well supported by empirical findings, particularly with respect to industries that can easily move offshore in search of lower regulatory standards. Rather, global patterns of regulation in these industries tend toward dispersion rather than conversion either upward or downward. There is as yet, however, little work in the international relations literature on global patterns of regulatory dispersion.

One of the most common models of regulatory dispersion in the economics literature was developed by Charles Tiebout in the context of the provision of municipal services, but several international relations scholars have noted that the assumptions of the model are not appropriate to international regulatory competition. This paper develops a modified Tiebout model that describes patterns of international regulatory dispersion in industries that engage in international regulatory arbitrage. It explains both specific patterns of dispersion, and the tendency for average regulatory levels to drift upward over time.