Law Articles

This article courtesy of SSRN - Legal Scholarship Network and authored by CHRISTIAN KIRCHNER and RICHARD W. PAINTER.

 Abstract:     
The purpose of this paper is to apply both neoclassical economics and a more recently developed method of economic analysis - new institutional economics - to Germany's system of shop closing hours regulation, and to put this peculiar type of regulation into the general theory of regulation that emerges from each of these two methodological approaches. Our intention is not only to compare the costs and benefits of the regulation itself, but also, through analyzing this particular type of regulation using both methodological approaches, to show differences between them. The paper is organized as follows: First, we look into the history of closing hours regulation from a public choice perspective. Then we apply standard neoclassical economics with a welfare economics orientation. The last part of the paper brings into play an institutional economics analysis. Our argument will focus on the difference between a simple welfare analysis where all consumers are taken as one group that might profit from cost reductions traced back to confining shopping hours to periods where labor costs are (relatively) low. In a competitive environment shopkeepers who are able to reduce costs by concentrating on fewer shopping hours should be forced to reduce prices respectively and thus would not profit from those cost reductions. Consumers who have to accept the disadvantage of confined shopping hours would be compensated by price reductions. The economic question then would be whether or not public regulation is superior to private agreements which could lead to comparable results. Our discussion looks into the preferences of different subsets of consumers. Some consumers might accept higher prices if they can shop at personally convenient hours; others might prefer lower prices and be willing to do their shopping only in limited periods of time. There is evidence of this even today, as we see many circumventions of closing hours regulation in Germany. Consumers reveal their preferences for late shopping hours by their willingness to pay higher prices when shopping in gas stations, late evening shops and Kiosks. If different groups of consumers have different preferences as far as shopping hours are concerned, the utilitarian approach of neoclassical economics would probably apply the Kaldor-Hicks test and find that closing hours regulation is economically justifiable if the winners of closing hours regulation can compensate the losers and still retain some welfare gains. This approach is difficult in practice, however, insofar as it presupposes comparability of individual utility across groups with very different preferences. Any attempt to convert these different measures of utility into a common currency would probably render the Kaldor-Hicks analysis unworkable. In practice, analysis of regulation under the Kaldor-Hicks approach thus presupposes perfect information and rationality of the person(s) evaluating the alternative regulatory regimes, and furthermore that lawmakers will respond to the evaluators' informed recommendation by implementing regulation based on the collective welfare rather than ulterior motives (special interests, ideological predispositions, etc.) The institutional economics approach goes in another direction: instead of applying the Kaldor Hicks-test to identify a solution that theoretically maximizes collective utility, identify first the learning process most likely to lead a society to a welfare maximizing solution. How can a society most effectively overcome imperfect information, irrationality and imperfections in the political process to actually solve a particular problem? Furthermore, new institutional economics characterizes the end objective somewhat differently: rather than identify the solution that maximizes collective welfare (an evaluation that, as explained above, is in practice often difficult), identify the solution that affected persons (consumers, shop owners and shop workers) would most likely consent to if they were not aware of their own special interests ahead of time (an analysis similar to the Rawlsian hypothetical consent behind a "veil of ignorance."). This determination of course has difficulties of its own, but the focus of new institutional economics first on the learning process and then on actual results allows at least some characteristics of the ideal regulatory regime to be identified even if others are left to be solved by experience rather than economic theory. This article concludes that for consumers, shop owners and workers alike, in a world of incomplete information, bounded rationality, and an imperfect political process, the arguments for an evolutionary process informed by market competition are superior to the arguments for public regulation. Although cartel regulations should perhaps be relaxed to allow private agreements on opening hours between merchants in individual neighborhoods, government should not compel merchants to enter into such agreements or penalize merchants who set opening hours on their own. Furthermore, if public entities must regulate shop closing hours, it is preferable that the regulation be determined on the local level rather than by a central government. Although market competition will most likely lead to superior results, jurisdictional competition is superior to regulation dictated by a central government.

This article courtesy of SSRN - Legal Scholarship Network and authored by MAURO BUSSANI, VERNON V. PALMER and FRANCESCO PARISI.

 Abstract:     
This paper considers the recent empirical findings on the application of the exclusionary rule for pure economic loss in European case law. Considering the judicial applications of the rule in 13 European jurisdictions, the analysis shows that a key factor in determining the optimal scope of the economic loss rule is in the relationship between pure economic loss and social loss. After identifying several factual categories, this paper considers a restatement of the exclusionary rule consistent with the economic model of optimal liability, according to which "A plaintiff cannot recover damages for a purely private economic loss."

The observed trends in European case law support the hypothesis that the practical contours of European economic loss rules - difficult to illuminate with traditional legal doctrines - follow the predicates of the efficiency criterion.

This article courtesy of SSRN - Legal Scholarship Network and authored by RICHARD W. PAINTER and CHRISTIAN KIRCHNER.

 Abstract:     
This article compares (i) Germany's highly protectionist 2001 corporate takeover law, (ii) the proposed EU Thirteenth Directive (which endorses the very different market oriented "strict neutrality rule" of the London City Code) and (iii) Delaware's "modified business judgment rule" which lies somewhere between these two approaches. The article also discusses some of the political and economic explanations for Germany's approach to hostile takeovers. The last section of the article discusses a fourth approach favored by the authors: allowing managers to initiate defenses against hostile tender offers but then allowing shareholders to veto management initiated defensive tactics through voting on the Internet.

This article courtesy of SSRN - Legal Scholarship Network and authored by BERNARD S. BLACK and ANNA TARASSOVA.

 Abstract:     
A decade of experience with the transition from centrally planned to market economies has taught us that the strength of a country's market-supporting "institutions" powerfully affect transition success. However, the necessary institutions are rarely specified in detail. This Article is an early installment on a larger project that begins the task of providing this missing detail through a case study of Russia. We describe the multiple legal, institutional, and microeconomic reforms that Russia needed to put in place as part of its transition to a market economy. We discuss the important and sometimes nonobvious synergies between different reform elements, and explain why these synergies make controlling corruption a core element of successful transition, which Russia long neglected. Our basic message is to stress the complexity of reform, the interrelatedness of reform elements, and the pervasive effect of corruption in undermining reform effort, and the potential for (mostly) self-enforcing laws to limit bureaucracy and corruption.

This article courtesy of SSRN - Legal Scholarship Network and authored by GERALD L. NEUMAN .

 Abstract:     
This paper compares the conception of the rule of law in U.S. constitutional law with the corresponding conception of the Rechtsstaat in modern German constitutional law. The type of Rechtsstaat established by the German constitution is clearly substantive. A commitment to human rights is understood as inherent in the concept of the Rechtsstaat, and so is the requirement of proportionality as a standard for evaluating restrictions on personal and economic liberties.

In U.S. constitutional law, by contrast, the concept of the rule of law does not operate as an enforceable constitutional doctrine, but rather as an ideal lying behind and informing both constitutional and nonconstitutional doctrines. Characterizing the vision of the rule of law expressed in U.S. constitutional law is, therefore, more difficult, but I argue that it is primarily procedural (or formal), with some substantive elements.

The concept of proportionality does not lack parallels in U.S. constitutional law; basically, it is a form of balancing of interests. But balancing is not regarded in U.S. constitutional doctrine as an element of the rule of law, and it is not applied to interferences with all constitutional rights. This is especially true with regard to economic rights that are more highly protected in German constitutional law.

The German constitution has been very influential as a model of constitutionalism, and one of its most exportable features may be its image of the Rechtsstaat. It remains to be seen to what degree the more substantive conception of the Rechtsstaat will carry protection of economic rights under the proportionality principle more widely into national constitutions and transnational arrangements, and to what degree those institutions will content themselves with the thinner Anglo-American conception of the rule of law.