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Regulatory competition and rules/principles‐based regulation

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  • Pascal Frantz
  • Norvald Instefjord

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.

Suggested Citation

  • Pascal Frantz & Norvald Instefjord, 2018. "Regulatory competition and rules/principles‐based regulation," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 45(7-8), pages 818-838, July.
    • Handle: RePEc:bla:jbfnac:v:45:y:2018:i:7-8:p:818-838
    DOI: 10.1111/jbfa.12313
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