Economist Albert Breton, a leading scholar of the economics of federal arrangements, has argued that competition among governments in federations is beneficial, in the same way that competition between firms in the private market maximizes economic welfare (2002, 36). However, Breton has also identified ‘races to the bottom’ or competition in laxity as one case of decentralization failure, where decentralization of a policy does not produce a socially optimal outcome.1 When is regulatory competition between governments harmful? How often is it harmful?