The Legal Framework of Regulatory Competition

Abstract

This paper takes a critical look at the explanatory value of "regulatory competition" as a term or idea in debate about law and legal systems. The paper's central contention is that it has only very limited usefulness, and is easily misused. It is an idea that has explanatory force in highly specific regulatory contexts, where rules concerning a particular activity or product are concerned, but does not generalise well.

The core reason is this: there are many ways of competing, and not all can be engaged in simultaneously, or at least there may be a tension between them. Competition between share buyers is well served by a liquid stock market, but competition between stock markets entails a multiplicity of such markets, with consequent reduction in the liquidity of each. At best a balance between competition between markets and between buyers of shares may be reached, but the two are not mutually supportive. Similarly, there are different ways for countries to use regulation to compete for factors, and not all of these are compatible with each other. Some lead in the direction of more openness, and some of more closure. To speak of encouraging regulatory competition does not in fact tell us much about the legal framework or concrete policies which are involved.

This is a point of some discursive importance. Dividing regulatory frameworks into those which stimulate competition and those which deny it forces advocates of those frameworks placed in the latter group to defend their choices in terms of a rejection of competition. This produces an inaccurate, unenlightening, and often unnecessarily ideological debate. In fact, regulatory competition occurs under all legal frameworks other than total harmonisation. Those countries that are accused of attempting to avoid regulatory competition, by protectionist measures, are often simply engaging in it.

Keywords: law, regulation, regulatory competition, european union, competition, protectionism

JEL Classification: K00, K20, K33, K21, L10, O15, P50