Center for Law and Economic Studies
Program in the Law and Economics of Capital Markets
It is possible to read Stephen Choi's article with admiration and enjoyment – until a critical point is reached at its very end. In an analysis that is balanced, nuanced, and thorough, Professor Choi initially reviews the recent debate over the role of law in fostering the development of financial markets. As others have also concluded, he finds a correlation between quality of law and financial development. At a few points, he may accept too easily the claim that the common law is superior to the civil law in fostering economic growth, without adequately considering the problem of multicollinearity that usually confounds efforts to infer causation from correlation. Still, his analysis is perceptive, reasonable, and well within the mainstream of contemporary scholarship. Nor do I wish to challenge the view that there are legal preconditions to the full development of financial markets.
But in his conclusion, Professor Choi leaps from description to prescription and focuses on "how to generate good law." Here he opines that the best way to strengthen the legal framework essential to financial development may be to encourage regulatory competition. He concludes by suggesting that policymakers should "expend their limited political capital in establishing policies to foster regulatory competition within their borders and among different countries." Alas, this is an overbroad non sequitur. Not only does his prescription not follow from his diagnosis, but as discussed below, it would prove perversely counterproductive to his goal of strengthening law.
Unfair as it may seem to focus primarily on his concluding remarks, this is where his analysis most intersects the concerns of this Symposium: how can the law foster economic growth and development? Professor Choi has developed his preferred prescription for strengthening law through regulatory competition elsewhere at some length. His ideas have come to be known as "issuer choice" – a right on the part of the issuer to choose the regime of securities law and regulation under which it will operate. Under issuer choice, a Delaware corporation listed on the New York Stock Exchange could choose to have its disclosure and other securities regulation standards specified by the law of Taiwan, Italy, or some other jurisdiction. The basic premise is that each issuer has the right incentives to choose the legal rules that will maximize its share value.
Superficially plausible as Professor Choi's premise sounds, it does not work – at least in this context – for a variety of independent reasons. In this brief Comment, I will review some, but not all, of the objections to his proposal. I will then turn to the broader topic of when, and to what extent, regulatory competition may make sense.
John C. Coffee Jr.,
Law and Regulatory Competition: Can They Co-Exist?,
Tex. L. Rev.
Available at: https://scholarship.law.columbia.edu/faculty_scholarship/522