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The Concept of Regulatory Arbitrage

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Law and Economics of Regulation

Part of the book series: Economic Analysis of Law in European Legal Scholarship ((EALELS,volume 11))

Abstract

Scholars of different disciplines use the concept of regulatory arbitrage to describe situations in which economic agents structure their activities to navigate between different levels of regulation because the latter are associated with different levels of costs and benefits. At the roots, regulatory arbitrage therefore is a hybrid concept: arbitrage brings in the economic, regulation the legal perspective. Against a law and finance background, this chapter argues that realising the conceptual overlap of these two perspectives is highly productive not only for analysing regulatory arbitrage, but also to guide our thinking on how to manage and evaluate this phenomenon. So far, however, the concept of regulatory arbitrage has been more often used than analysed and conceptual analysis remains patchy. For communicating and researching this topic that is unhelpful. This chapter therefore works out a conceptual framework of regulatory arbitrage and shows how this connects and extends previous research.

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Notes

  1. 1.

    Leyshon (1992), p. 251 (references omitted).

  2. 2.

    Greenberg (1983), pp. 1493–1496; Leyshon (1992), p. 260; Windecker (1993), pp. 361–366.

  3. 3.

    Kay (2016), p. 115.

  4. 4.

    Partnoy (1997), p. 227.

  5. 5.

    Knoll (2008), p. 96; Knoll (2002), pp. 75–76.

  6. 6.

    Zingales (2015), p. 1353.

  7. 7.

    Cf. supra quotation accompanying note 1 (speaking of “regulatory arbitrage”).

  8. 8.

    Cf. Willesson (2017), pp. 77–81 (providing an overview of different definitions).

  9. 9.

    Wittgenstein (1984), sec. 43.

  10. 10.

    See Coffee (2013), p. 1260.

  11. 11.

    See supra text accompanying note 1.

  12. 12.

    See Adrian and Ashcraft (2012), p. 13.

  13. 13.

    See Goodhart (2008).

  14. 14.

    Cf. Stekeler (2014), pp. 174–176.

  15. 15.

    Kane (1988), p. 330; Kane (1993), pp. 179–180; Nabilou (2017), p. 596.

  16. 16.

    Bar-Gill (2006); Cary (1973).

  17. 17.

    See Romano (1985); for a critical assessment Stark (2019).

  18. 18.

    French et al. (2009), p. 290.

  19. 19.

    Fleischer (2010), p. 230.

  20. 20.

    In a similar vein, Barry (2010), p. 74.

  21. 21.

    Kane (1988), p. 333.

  22. 22.

    Posner (1971); Kane (1981), p. 357; further Story and Walter (1997), p. 129; Gerding (2016), p. 362.

  23. 23.

    Kane (1988), p. 333; more explicitly, Kane (1981), pp. 357, 359.

  24. 24.

    Stiglitz (2009), p. 313.

  25. 25.

    Weber (1894), p. 77.

  26. 26.

    Akram et al. (2009); Lamont and Thaler (2003).

  27. 27.

    Kane (1988), p. 333 (emphasis omitted).

  28. 28.

    Partnoy (2019), p. 1036.

  29. 29.

    See supra text accompanying note 14.

  30. 30.

    See supra text accompanying note 22.

  31. 31.

    Zeitler (2012), p. 678.

  32. 32.

    For such an analysis, see Independent Commission on Banking (2011), chap. 5.

  33. 33.

    See supra text following note 30.

  34. 34.

    Cf. Hardie and MacKenzie (2012).

  35. 35.

    Shleifer and Vishny (1997), p. 36; see also Bodie (2019).

  36. 36.

    Kane (2014), p. 775.

  37. 37.

    See infra text following note 48.

  38. 38.

    Cf. supra text following note 13.

  39. 39.

    Cf. supra text accompanying note 30.

  40. 40.

    Schanze (1995), p. 166.

  41. 41.

    Cf. Schäfer (1995), p. 180.

  42. 42.

    Cf. Mueller (1958).

  43. 43.

    See Kane (1981), pp. 355–356; Kane (1983), pp. 96–97; Kane (1988), pp. 332–333; Kane (1993), pp. 182–184; for examples, see Finnerty (1985); Mosebach (2000).

  44. 44.

    See supra text accompanying note 14.

  45. 45.

    See Akerlof and Shiller (2015).

  46. 46.

    See Braudel (1997); Wallerstein (1991); in a similar vein, Kay (2016), p. 66.

  47. 47.

    Cf. Kane (1981), p. 358; Leyshon (1992), p. 251.

  48. 48.

    See infra text accompanying note 69.

  49. 49.

    See Gerding (2016), pp. 365–367; Haldane (2012), pp. 6–8.

  50. 50.

    Cf. Hayek (1945), p. 530.

  51. 51.

    E.g. Eichengreen (2010), p. 108; G-20 (2008), p. 2; Macey (2003), pp. 1353–1354.

  52. 52.

    E.g. Merton (1995), p. 39; Möslein (2014), pp. 28–29; Kay (2016), pp. 117, 211.

  53. 53.

    E.g. McBarnet (2010), p. 16; Tröger (2016), p. 199; Kay (2016), p. 211.

  54. 54.

    For the particular strategies against regulatory arbitrage in the field of private international law, see Junker (2019), pp. 97–99; Riles (2014).

  55. 55.

    Coffee (2013), p. 1269.

  56. 56.

    Riles (2014), pp. 77–83.

  57. 57.

    Cf. supra text following note 29.

  58. 58.

    Cf. Kessler and Wilhelm (2013), pp. 252–255.

  59. 59.

    McBarnet and Whelan (1992), p. 140; in a similar vein, Riles (2014), p. 83.

  60. 60.

    Cf. MacKenzie (2009), pp. 127–129, 134–35.

  61. 61.

    McBarnet and Whelan (1991), pp. 865–868.

  62. 62.

    McBarnet and Whelan (1991), p. 864; Kay (2016), p. 212; for an example, Casey and Lannoo (2009), pp. 125–126, 134.

  63. 63.

    Black (1995), p. 109; Black (2011).

  64. 64.

    See supra text accompanying note 14 and 44.

  65. 65.

    Kay (2016), p. 117.

  66. 66.

    McBarnet and Whelan (1991), p. 857.

  67. 67.

    Cf. supra text accompanying note 36.

  68. 68.

    Stiglitz (2010), pp. 82–83.

  69. 69.

    See supra text accompanying note 48.

  70. 70.

    See Mullineux (2010), p. 246; Macey (1995), pp. 82, 84, 93; Fleischer (2010), p. 275; Möslein (2014), pp. 31–32; contra: Stout (1995), pp. 57, 67–68; Partnoy (2019), pp. 1041–1042.

  71. 71.

    Merton (1995), p. 39; Partnoy (1997), p. 215; Shah (1997), p. 92; Kay (2016), p. 116.

  72. 72.

    See Kay (2016), p. 117; cf. supra text accompanying note 32.

  73. 73.

    Zingales (2015), p. 1350; Partnoy (1997), p. 241; cf. Kay (2016), p. 117.

  74. 74.

    See Trachtman (2000), pp. 342–343; Tarko and Farrant (2019).

  75. 75.

    See supra text accompanying note 23–29.

  76. 76.

    In a similar vein, Partnoy (2019), p. 1035.

  77. 77.

    Knoll (2002), p. 63.

  78. 78.

    See Acharya et al. (2020).

  79. 79.

    See supra text following note 1.

  80. 80.

    Jiang (2015), p. 3.

  81. 81.

    See Shen (2015).

  82. 82.

    See generally Heath (2011).

  83. 83.

    McBarnet and Whelan (1991), p. 873; Shah (1997), p. 101; McBarnet (2010), p. 16; further also Fleischer (2010), pp. 264–272; Pistor (2019), chap. 7.

  84. 84.

    See references in notes 71 and 83.

  85. 85.

    Zingales (2015), p. 1350; see also Ford (2017), p. 156.

  86. 86.

    Schäfer (1995), p. 180; Zingales (2015), p. 1357; Partnoy (2019), p. 1039.

  87. 87.

    Ford (2017), p. 141.

  88. 88.

    See Grossman and Stiglitz (1980), p. 393.

  89. 89.

    Akram et al. (2009), p. 1742.

  90. 90.

    See supra text accompanying note 36 and 82.

  91. 91.

    Shleifer and Vishny (1997); Hardie and MacKenzie (2012).

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Acknowledgement

I am grateful to Hans-Bernd Schäfer and Tobias Tröger for their comments on a draft of this chapter. The support by the Programme for Professor of Special Appointment (Eastern Scholar) at Shanghai Institutions of Higher Learning is acknowledged.

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Coendet, T. (2021). The Concept of Regulatory Arbitrage. In: Mathis, K., Tor, A. (eds) Law and Economics of Regulation. Economic Analysis of Law in European Legal Scholarship, vol 11. Springer, Cham. https://doi.org/10.1007/978-3-030-70530-5_8

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