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Financial regulation: regulatory arbitrage and regulatory harmonization

Frantz, Pascal and Instefjord, Norvald (2012) Financial regulation: regulatory arbitrage and regulatory harmonization. Social Science Research Network.

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Abstract

This paper analyzes the problem of designing optimal financial regulation when regulatory arbitrage allows competition from other regulators, and whether regulatory harmonization as a means to curb regulatory arbitrage is desirable. We find (i) that regulatory arbitrage and competition matter in the sense that the optimal autarky approach to regulation may not be optimal in open economies; (ii) regulatory arbitrage that takes place in equilibrium is not as important as the possibility of regulatory arbitrage and the associated impact on regulatory competition; and (iii) regulatory diversity can be welfare optimal even though it leads to more regulatory arbitrage activity than regulatory harmonization.

Item Type: Monograph (Working Paper)
Official URL: http://papers.ssrn.com/
Additional Information: © 2012 The Authors
Library of Congress subject classification: H Social Sciences > HB Economic Theory
H Social Sciences > HF Commerce > HF5601 Accounting
Journal of Economic Literature Classification System: G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation
Sets: Departments > Accounting
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 10 Aug 2012 10:41
URL: http://eprints.lse.ac.uk/45326/

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