Interjurisdictional Linkages and the Scope for Interventionist Legal Harmonization

We study the desirability of interventionist harmonization of legal standards across multiple, mutually interdependent jurisdictions which strive to adapt law to their local conditions, as well as to synchronize it with other jurisdictions. In a setting where jurisdictions are privately informed about their local conditions, we contrast the regime of decentralized standard-setting with two means of interventionist harmonization: through centralization and through allocation of lawmaking authority to a particular jurisdiction. Our analysis illuminates the importance of patterns of interjurisdictional linkages in delineating the scope for, and the appropriate means of, interventionist harmonization. We find that greater jurisdictional interdependence - the hallmark of globalization - does not per se justify interventionist harmonization, unless increased interdependence results in notable asymmetries in the pattern of jurisdictional interdependence. We also show that, in the presence of cross-jurisdictional externalities, harmonization is, contrary to conventional predictions, not desirable when local preferences are homogeneous across jurisdictions.