89 Texas L. Rev. See Also 69
Professor Barry evaluates Professor Fleischer’s analytical framework developed in Regulatory Arbitrage, which addresses how actors respond generally to regulations, but also the related issue of what limits parties’ ability to avoid regulations. Barry offers praise for the framework’s flexibility, ability to consider issues of regulatory arbitrage, and policy neutrality, but provides three comments regarding the framework.
First, Barry argues that “professional constraints” arising from being a member of the legal profession and a partner at a law firm are not as irrelevant as Fleischer claims with regard to their ability to restrain regulatory arbitrage. Barry draws from his experience in professional practice in expressing his belief that while they are far from being a perfect prevention mechanism, such professional constraints offer some value.
Second, Barry expresses surprise at the lack of discussion in Fleischer’s article of the ability of family members to avoid regulations through collective action, since such discussion would support Fleischer’s arguments regarding the effect of anti-avoidance regimes on regulatory arbitrage. Specifically, regardless of the fact that families are in the best position to circumvent regulations due to their relationships, avoidance by such families is not believed to be a major issue, according to Fleischer. Rather, the archetypal regulatory avoider is the sophisticated repeat player in the financial markets. Barry argues that the effectiveness of anti-avoidance legal rules reconciles this discrepancy, thereby strongly supporting one of the article’s main arguments.
Third, Barry conveys concern with Fleischer’s usage of financial arbitrage, a more established concept, as a model to analyze regulatory arbitrage. Barry’s apprehension is limited to how using such a framework may distract the readers’ attention from a more pertinent definition of regulatory arbitrage. More precisely, financial arbitrage occurs when there are multiple prices on economically identical assets, whereas regulatory arbitrage occurs when there is a mismatch between the economics of a transaction and its concomitant regulation, and using examples from the former situation to inform the latter may place one “on the wrong track.”