Hrm...seems it is account wide only for dungeons, is character and zone specific for open world, and can be avoided simply by switching characters according to the wiki. Thought I'd dig into it because I want to make sure I'm not shooting myself in the foot.http://wiki.guildwars2.com/wiki/Diminishing_returns
- - - Updated - - -
The wiki does state loot from enemies is affected, but it's per zone per character and can be reset by logging on another character and them back on your normal one.