Regulatory Cooperation and Competition - The Search for Virtue

Abstract

This article argues that proponents of international regulatory cooperation need to confront the welfare losses that might occur due to missed opportunities for cooperative regulatory competition. Cooperative regulatory competition takes places when jurisdictions agree to honor formal and manipulable choice-of-law rules, such as contractual choice, the place-of-incorporation rule, and the territoriality principle, that enable persons engaged in international business to pick regulatory systems that will govern their transactions. I review current opportunities for this kind of competition with respect to securities regulation, bankruptcy, intellectual property, and antitrust. I then discuss the substantive case for maintaining or expanding these opportunities in light of potential benefits from races to the top. I base my argument partly on new research by cognitive psychologists on fast and frugal heuristics. This research undermines arguments against respecting individual choices that have dominated much of the discussion about regulation in the legal academic literature over the last fifteen years.