National Laws, International Money: Regulation in a Global Capital Market

Abstract

This article puts forth a framework for analysis of international regulatory competition and cooperative efforts in the capital market context. Over the past decade, the SEC has pushed repeatedly for international accords on accounting standards and insider-trading. This paper critiques such cooperative efforts, arguing that international agreements are both difficult and slow to obtain. Moreover, such agreements are vulnerable to political rent-seeking among other faults. Rather, the paper argues for more regulatory competition among countries. To analyze the effects of regulatory competition, the paper uses its framework to examine how countries interact with one another in fashioning their domestic securities regulatory regimes. Mobility is particularly important where countries, investors, and companies are heterogeneous. The paper concludes that greater mobility of both heterogeneous investors and companies results in a "race-to-the-top" separating equilibrium among country-specific regimes leading to better informed investors and greater social welfare as a result.

JEL Classification: G15, G18, K22