Jurisdictional Arbitrage

Jurisdictional arbitrage is the practice of taking advantage of the discrepancies between competing legal jurisdictions. It takes its name from arbitrage, the practice in finance of purchasing a good at a lower price in one market and selling it at a higher price in another. Just as in financial arbitrage, the attractiveness of jurisdiction arbitrage depends largely on its transaction costs — in this case the costs of switching legal service providers from one government to another. The lower the exit costs for leaving the jurisdiction — unrestricted emigration, cheap travel, liquidity of assets — the more desirable and feasible it is. Conversely, high entry costs into the more favourable jurisdiction are an inhibitor on jurisdictional arbitrage — certain tax havens such as Andorra only grant permanent residency rights to immigrants who meet certain criteria. Jurisdictional arbitrage is a significant concept in modern free market anarchist schools of thought.