Once this is possible, then the temptation arises for the people running those different legal systems to compete to offer better terms than their "competitors" to attract investment.
One opinion is that regulatory competition in fact creates a "race to the top" in standards, due to the ability of different actors to select the most efficient rules by which to be governed.
In 1890 New Jersey enacted a liberal corporation charter, which charged low fees for company registration and lower franchise taxes than other states.
In academic literature the phenomenon of regulatory competition reducing standards overall was argued for by AA Berle and GC Means in The Modern Corporation and Private Property (1932) while the concept received formal recognition by the US Supreme Court in a decision of Justice Louis Brandeis in the 1933 case Ligget Co. v. Lee[1] In 1932 Brandeis also coined the term “laboratories of democracy” in New State Ice Company v. Liebmann,[2] noting that the Federal government was capable of ending experiment.
[citation needed] In Europe, regulatory competition has long been prevented by the real seat doctrine prevailing in private international law of many EU and EEA member countries, which essentially required companies to be incorporated in the state where their main office was located.
[7] The struggle between insurgents and various Afghanistan states for power, control, popular support and legitimacy in the eyes of the public has been described as competitive governance.
Indeed, it has been argued by Maria Brouwer that most autocracies prefer stagnation to the vagaries inherent to expansion and other forms of innovation, since the exploration of new possibilities could lead to failure, which would undermine autocratic authority.
[12] Brennan and Buchanan (1980) argue that the public sector is a 'Leviathan' which is inherently biased towards extracting money from taxpayers, but that competitive government structures can minimize such exploitation.