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Klick, Jonathan --- "The Law and Economics of Regulatory Competition" [2011] ELECD 1079; in Parisi, Francesco (ed), "Production of Legal Rules" (Edward Elgar Publishing, 2011)

Book Title: Production of Legal Rules

Editor(s): Parisi, Francesco

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781848440326

Section: Chapter 21

Section Title: The Law and Economics of Regulatory Competition

Author(s): Klick, Jonathan

Number of pages: 14

Extract:

21 The law and economics of regulatory
competition
Jonathan Klick



Introduction
Regulations1 exist for many reasons. They may exist to correct for market
failures arising from externalities. They may exist to reduce transactions costs
or informational asymmetries. They may also exist to constrain behavior to bring
it into accord with the normative preferences of the median voter or some other
politically powerful entity in the jurisdiction. However, regulations may also
serve as rent-seeking vehicles for politicians and other actors in the jurisdiction.
Regulatory competition, whereby different jurisdictions compete for residents
or other mobile resources on the basis of the regulations they offer, is often
characterized as leading to a race to the top or a race to the bottom. That is,
depending on who is doing the characterizing and what the regulatory status
quo is, increasing the amount of inter-jurisdictional competition is predicted to
lead to systematically better or worse regulatory outcomes.
For example, environmentalists predict that state competition on environmental
standards will lead to a race to the bottom as jurisdictions compete for the

1 For the purposes of this chapter, regulations are viewed as being separate from
laws that are enforced primarily through litigation. Of course, at a high enough level of
abstraction, all laws serve to regulate behavior to some degree or to create a starting point
for contractual bargaining. While some of the law and economics literature distinguishes
the two by suggesting that regulation constrains behavior ex ante, while litigation operates
ex post, this ...


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