Berkeley Program in Law and Economics

This Article documents and analyzes a powerful form of regulatory competition - competition for investments - that has transformed national corporate laws in the European Union in recent years. Unlike the competition for incorporations that shapes Delaware corporate law and, by some accounts, the corporate laws of other American states as well, competition for investments sparks innovation in corporate law when firms cannot incorporate outside the jurisdiction in which they operate, and is designed to attract investments in local businesses rather than incorporations by foreign businesses. The high political payoffs that await successful participants in the competition for investments enable them to overcome opposition that could stifle competition for incorporations. And, together with the fact that no single jurisdiction in the European Union can dominate the market for investments, these payoffs drive multiple jurisdictions, including large ones, to compete. Allowing firms to incorporate outside the jurisdiction in which they operate, as a recent series of European Court of Justice rulings requires, may or may not breed competition for incorporations. Either way, however, as long as the competition for investments does not lose its steam, the effect on firms will be quite the same. Judging from the reforms that the competition for investments has fueled so far, the effect will be positive.