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The efficiency of regulatory arbitrage

Author

Listed:
  • Vlad Tarko

    (Dickinson College)

  • Andrew Farrant

    (Dickinson College)

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.

Suggested Citation

  • Vlad Tarko & Andrew Farrant, 2019. "The efficiency of regulatory arbitrage," Public Choice, Springer, vol. 181(1), pages 141-166, October.
    • Handle: RePEc:kap:pubcho:v:181:y:2019:i:1:d:10.1007_s11127-018-00630-y
    DOI: 10.1007/s11127-018-00630-y
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    More about this item

    Keywords

    Regulatory capitalism; Polycentricity; Common law; Rent-seeking; Certification markets;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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