Legal competition, political process and irreversible investment decisions

We compare the effects of competition for the design of labor laws in an environment characterized by irreversible investments in human and physical capital. We compare autarky with two-country cases, assuming that capital is mobile and labor immobile. We distinguish two cases. In the first, the political system is free from capture, while in the second, we examine the case where labor captures the institutional design problem. We find that in the former case legal competition reduces welfare while in the latter it improves the overall outcome.