Institutions and Regulatory Reforms for the Age of Governance
- The CRC Series on Competition, Regulation and Development
Edited by Jacint Jordana and David Levi-Faur
Chapter 5: Regulatory Co-operation: Transcending the Regulatory Competition Debate
5. Regulatory co-opetition: transcending the regulatory competition debate Damien Geradin and Joseph A. McCahery INTRODUCTION The reduction in barriers to trade and the liberalization of financial markets, transportation and telecommunications have created the basis for the increase in flows of factors of production between jurisdictions (Bratton and McCahery, 1997). As countries move to a more liberalized domestic economy, questions of competition between jurisdictions abound. With the prospect of increased capital mobility, it is becoming conventional wisdom that national governments are forced to perform their economic policy functions more efficiently since governments that yield optimal levels of public goods may be more successful in the competition between jurisdictions for attracting mobile resources. The concern to attract mobile resources has shaped entire areas of governmental policy and plays a determinative role for firms locating new plants. Arguments in favour of decentralization follow from the economics of competition between jurisdictions. The theory of regulatory competition tells us that allowing for more decentralization helps to remove much of the asymmetrical information problems, reduces the prospects of regulatory capture, and enhances the introduction of a range of alternative solutions for similar problems. The economic advantages of decentralization undoubtedly provided a strong argument for politicians within federal systems to introduce the dynamic of diversity as a counterbalance to the discretion of central government (Inman and Rubinfeld, 1997a; McKinnon and Nechyba, 1997; Choi and Guzman, 2001).1 Regulatory competition is an economic theory of government organization that equates decentralization with efficient results.2 The theory makes an analogy...
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