The Efficiency of Regulatory Arbitrage

41 Pages Posted: 20 Nov 2018 Last revised: 11 Dec 2018

See all articles by Vlad Tarko

Vlad Tarko

University of Arizona - Department of Political Economy and Moral Science

Andrew Farrant

Dickinson College - Department of Economics

Date Written: November 13, 2018

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

Suggested Citation

Tarko, Vlad and Farrant, Andrew, The Efficiency of Regulatory Arbitrage (November 13, 2018). Public Choice, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3284144

Vlad Tarko (Contact Author)

University of Arizona - Department of Political Economy and Moral Science ( email )

Tucson, AZ
United States

Andrew Farrant

Dickinson College - Department of Economics ( email )

Room 120, Althouse Hall
Carlisle, PA 17013
United States

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