Regulatory Competition and Rules/Principles‐Based Regulation

21 Pages Posted: 3 Aug 2018

See all articles by Pascal Frantz

Pascal Frantz

London School of Economics

Norvald Instefjord

University of Essex - Essex Business School

Date Written: July/August 2018

Abstract

This paper analyses how regulatory competition affects principles‐based and rules‐based systems of regulation. Competition between regulators creates the possibility of regulatory arbitrage that generates a race to the bottom by regulators that is socially harmful. We derive the welfare effects of such competition and the regulatory response to these effects, in particular, regulatory harmonisation. We find, however, that regulators can adopt harmful regulatory harmonisation. These effects can make coordination efforts in developing global regulation socially desirable. We demonstrate, moreover, that corporate lobbying is not always harmful: it can both encourage and discourage socially desirable regulation.

Keywords: corporate lobbying, principles based regulation, regulatory arbitrage, regulatory harmonization, rules based regulation

Suggested Citation

Frantz, Pascal and Instefjord, Norvald, Regulatory Competition and Rules/Principles‐Based Regulation (July/August 2018). Journal of Business Finance & Accounting, Vol. 45, Issue 7-8, pp. 818-838, 2018, Available at SSRN: https://ssrn.com/abstract=3225469 or http://dx.doi.org/10.1111/jbfa.12313

Pascal Frantz (Contact Author)

London School of Economics ( email )

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Norvald Instefjord

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

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