The efficiency of regulatory arbitrage

Vlad Tarko, Andrew Farrant

Research output: Contribution to journalArticlepeer-review

8 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)141-166
Number of pages26
JournalPublic Choice
Volume181
Issue number1-2
DOIs
StatePublished - Oct 1 2019
Externally publishedYes

Keywords

  • Certification markets
  • Common law
  • Polycentricity
  • Regulatory capitalism
  • Rent-seeking

ASJC Scopus subject areas

  • Sociology and Political Science
  • Economics and Econometrics

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