Jurisdictional arbitrage

Jurisdictional arbitrage is the practice of taking advantage of the discrepancies between competing legal jurisdictions. It takes its name from arbitrage, the practice in finance of purchasing a good at a lower price in one market and selling it at a higher price in another. Just as in financial arbitrage, the attractiveness of jurisdiction arbitrage depends largely on its transaction costs, here the costs of switching legal service providers from one government to another.

The lower the exit costs for leaving the jurisdiction (unrestricted emigration, cheap travel, liquidity of assets) the more desirable and feasible it is. Conversely, high entry costs into the more favourable jurisdiction are an inhibitor on jurisdictional arbitrage; certain tax havens such as Andorra grant permanent residency rights to immigrants only if they meet certain criteria. Jurisdictional arbitrage is a significant concept in modern free market anarcho-capitalism, not to be confused with anarchism per se.

The practice of individuals seeking asylum involves appealing to a jurisdiction with favorable individual rights for residency, where the individual's native jurisdiction is seen to offer insufficient protection. By way of example, women have fled West African nations which practice tribal female genital mutilation and/or extremist Islam in favour of European and North American jurisdictions.

To avoid arbitrary restrictions on skilled immigration, high-tech companies may set up offices in countries neighboring those with the restrictive policies, preferably in locations close to the border, as was the case with Microsoft's plans to open a satellite office in Vancouver, Canada, situated only 140 miles (225 km) from its headquarters in the Seattle suburb of Redmond, Washington in the United States. In Silicon Valley, a project is underway to launch a ship 12 nautical miles from the shore, in international waters, with the goal of allowing entrepreneurs without US work visas to legally create and work for companies close to the area (see Blueseed).

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