A European Nevada? Bad Enforcement As an Edge in State Competition for Incorporations

Andrea Zorzi ()
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Andrea Zorzi: Department of Economics, University Of Venice CÃ Foscari

No 2016:12, Working Papers from Department of Economics, University of Venice "Ca' Foscari"

Abstract: Although now possible, no European state is competing for incorporations and this is unlikely to happen in a general fashion. In this paper I argue that, however, the possibility that one state competes for one specific segment of the market for incorporations should not be ruled out altogether. As has happened with Nevada in the U.S., a state could seek to attract companies that are looking for a very protective legal environment for their directors, officers and shareholders. Given the importance of enforcement, I argue that states could compete by capitalising on the inefficiency of their courts, rather than by changing the law on the books. The fact that no investment is necessary would change the perspective on incentives of states to compete: a very small incentive is needed, if the costs are negligible. I also take into account the possible drawbacks of such competition and the reaction other states could have.

Keywords: Corporate Law; European Union; State competition; Regulatory competition; Delaware; Nevada; Harmonization; Race to the bottom (search for similar items in EconPapers)
JEL-codes: D72 G30 G32 G34 K20 K22 K41 K42 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2016
New Economics Papers: this item is included in nep-cfn and nep-law
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