Regulatory Competition and Economic Integration: Comparative Perspectives

Competition Policy and Antitrust

Article Snapshot

Author(s)

Daniel Esty and Damien Geradin

Source

Daniel Esty and Damien Geradin, eds., New York: Oxford University Press, 2001

Summary

This book presents arguments for and against cross-border policy coordination through numerous case studies.

Policy Relevance

Governments should make decisions to coordinate policies with other governments, or to compete with them through policies, on a case-by-case basis.

Main Points

  • Governments can cooperate with one another to synchronize their policies; this can minimize market failures and prevent “races to the bottom.”

    • For example, two governments might agree to require certain firms in their countries to limit pollution; if a government adopted this policy unilaterally, it might lose firms to the other country, and that country would become excessively polluted.


    • Governments can also coordinate to avoid wasteful product standards; for example, wines produced in Europe must be relabeled for sale in the United States at some cost.
       
  • However, when governments compete for firms by setting different policies, better policies sometimes follow.

    • Governments often regulate inefficiently, and consumers and firms bear the cost; but if firms can relocate to access alternative policies they can avoid this cost.


    • The possibility of losing firms pressures governments to regulate efficiently.


    • Policies appropriate for some locations may be undesirable in others.  For example, a policy regarding water use in a desert might be inappropriate for a city near a lake.
       
  • The relative desirability of regulatory cooperation and competition has been debated for some time in areas like environmental law, tax policy, banking regulation, labor law, and antitrust.


  • Speaking broadly, optimal policy is likely to involve a mix of competition and cooperation between governments, firms, and other agents.     

     

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