Regulatory competition

Regulatory competition, also called competitive governance or policy competition, is a phenomenon in law, economics and politics concerning the desire of law makers to compete with one another in the kinds of law offered in order to attract businesses or other actors to operate in their jurisdiction. Regulatory competition depends upon the ability of actors such as companies, workers or other kinds of people to move between two or more separate legal systems. Once this is possible, then the temptation arises for the people running those different legal systems to compete to offer better terms than their "competitors" to attract investment. Historically, regulatory competition has operated within countries having federal systems of regulation - particularly the United States, but since the mid-20th century and the intensification of economic globalisation, regulatory competition became an important issue internationally.

One opinion is that regulatory competition in fact creates a "race to the top" in standards, due to the ability of different actors to select the most efficient rules by which to be governed. The main fields of law affected by the phenomenon of regulatory competition are corporate law, labour law, tax and environmental law. Another opinion is that regulatory competition between jurisdictions creates a "race to the bottom" in standards, due to the decreased ability of any jurisdiction to enforce standards without the cost of driving investment abroad.

The concept of regulatory competition emerged from the late 19th and early 20th century experience with charter competition among US states to attract corporations to domicile in their jurisdiction. In 1890 New Jersey enacted a liberal corporation charter, which charged low fees for company registration and lower franchise taxes than other states. Delaware attempted to copy the law to attract companies to its own state. This competition ended when Woodrow Wilson as Governor tightened New Jersey's laws again through a series of seven statutes.

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