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1 - Decoding Jurisdictional Arbitrage

Strategies, Implications, and Global Dynamics

Published online by Cambridge University Press:  18 December 2025

Ronen Palan
Affiliation:
City University London
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Summary

This chapter develops a synthetic framework for understanding jurisdictional arbitrage – a practice as old as taxation itself, yet still lacking a unified theory. While classical arbitrage exploits price differentials, jurisdictional arbitrage exploits mismatches between legal and regulatory systems across sovereign states. Drawing on foundational works by Fleischer, Riles, Partnoy, Pistor, and O’Hara and Ribstein, the chapter distinguishes five key forms of arbitrage: financial, tax, regulatory, reporting/liability, and jurisdictional. Jurisdictional arbitrage, in particular, arises from fragmented sovereignty and the spatial dissociation of legal and economic activities. Unlike domestic regulatory arbitrage, it operates across borders to create dual pricing regimes – what Partnoy calls the ‘law of two prices’. Legal coding, in Pistor’s terms, transforms assets into capital, reinforcing disparities. Sophisticated corporate structures – especially those of MNCs – strategically arbitrage these regimes through complex transactions, legal wrappers, and intangible assets. Jurisdictional arbitrage thus emerges not as market distortion, but as a core mechanism of corporate strategy and power. By integrating insights from law, economics, and political economy, this chapter repositions arbitrage from a marginal tactic to a systemic institutional practice central to contemporary capitalism.

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