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

Though now possible, no European state is competing for incorporations, and this is unlikely to happen in a general fashion. In this article I argue, however, that the possibility of one state competing for one specific segment of the market for incorporations should not be ruled out altogether. As happened with Nevada in the US, a state could seek to attract companies that are looking for a very protective legal environment for their directors, officers and shareholders or for the company itself. 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 for states to compete: a very small incentive will be needed if the costs are negligible. I also consider the possible drawbacks of such competition and the possible reactions from other states.