THE ELGAR COMPANION TO LAW AND ECONOMICS The Elgar Companion to Law and Economics Second Edition Edited by Jürgen G. Backhaus Krupp Chair in Public Finance and Fiscal Sociology, Erfurt University, Germany Edward Elgar Cheltenham, UK • Northampton, MA, USA © Jürgen G. Backhaus 2005 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited Glensanda House Montpellier Parade Cheltenham Glos GL50 1UA UK Edward Elgar Publishing, Inc. 136 West Street Suite 202 Northampton Massachusetts 01060 USA A catalogue record for this book is available from the British Library ISBN 1 84542 032 2 (cased) Typeset by Manton Typesetters, Louth, Lincolnshire, UK Printed and bound in Great Britain by MPG Books Ltd, Bodmin, Cornwall v Contents List of figures ix List of tables x List of contributors xi Introduction 1 Jürgen G. Backhaus PART I BASICS OF THE LAW AND ECONOMICS APPROACH 1 Coase theorem and transaction cost economics in the law 7 Francesco Parisi 2 Property rights and their partitioning 40 Christian Müller and Manfred Tietzel 3Legal change in economic analysis 53 John N. Drobak and Douglass C. North 4Positive, normative and functional schools in law and economics 58 Francesco Parisi 5 Commons and anticommons 74 Francesco Parisi and Ben Depoorter PART II PRIVATE LAW AND ECONOMICS 6The economics of tort law 87 Giuseppe Dari Mattiacci and Francesco Parisi 7Family 103 Margaret Brinig 8 Inheritance 119 Richard E. Wagner 9 Intellectual property and the markets of ideas 127 Giovanni B. Ramello 10 Incomplete contracts and institutions 145 Antonio Nicita and Ugo Pagano PART III PUBLIC LAW AND ECONOMICS 11 Central bank 165 Z ˇ eljko S ˇ evic´ 12 Constitutional economics I 184 Francesco Farina 13 Constitutional economics II 223 Ludwig Van den Hauwe 14 Administrative law and economics 239 Jean-Michel Josselin and Alain Marciano 15 Property 246 Thomas J. Miceli 16 The European Union’s institutional design 261 Elisabetta Croci Angelini 17 Subsidiarity 280 Jürgen G. Backhaus PART IV LABOUR LAW AND ECONOMICS 18 Labour contracts 289 Don Bellante 19 Company board representation 297 Jürgen G. Backhaus 20 Employment security through dismissal protection: market versus policy failures 311 Christoph F. Buechtemann and Ulrich Walwei PART V REGULATION, TAXATION AND PUBLIC ENTERPRISE 21 Structures of public enterprise 329 Jürgen G. Backhaus 22 Environmental law and economics 345 A. Allan Schmid 23 Environmental policies choice as an issue of informational efficiency 350 Donatella Porrini 24 Tradable emission rights 364 Edwin Woerdman 25 Regulatory taxation 381 Jürgen G. Backhaus PART VI DISPUTE RESOLUTION 26 Dispute resolution 393 Thomas J. Miceli vi The Elgar companion to law and economics PART VII DIFFERENT SOURCES OF THE LAW 27 Judicial independence 407 Sophie Harnay 28 General norms and customs 424 Jean-Michel Josselin and Alain Marciano 29 Science as a source of law 433 Peter R. Senn 30 Social science as a source of the law 442 Peter R. Senn 31 Cognitive science 453 John N. Drobak 32 Connections with law and society research 459 Jürgen G. Backhaus PART VIII TOWARDS AN IDEAL ECONOMIC ANALYSIS OF A LEGAL PROBLEM 33 Towards an ideal economic analysis of a legal problem 465 Jürgen G. Backhaus PART IX CLASSICAL AUTHORS IN LAW AND ECONOMICS 34 Cesare Beccaria (1738–94) 475 Francesco Parisi and Giampaolo Frezza 35 Franz Böhm (1895–1977) 489 Heinz Grossekettler 36 John R. Commons (1862–1945) 499 Warren J. Samuels 37 Walter Eucken (1891–1950) 508 Leland B. Yeager 38 Otto von Gierke (1841–1921) 519 Jürgen G. Backhaus 39 Augusto Graziani (1865–1938) 522 Giampaolo Frezza and Francesco Parisi 40 Robert Lee Hale (1884–1969) – legal economist 531 Nicholas Mercuro, Steven G. Medema and Warren J. Samuels 41 Friedrich August von Hayek (1899–1992) 545 Ludwig Van den Hauwe 42 Theodor Herzl (1860–1904) 559 Peter R. Senn Contents vii 43 Rudolf von Jhering (1818–92) and the economics of justice 568 J.L.M. Elders 44 Franz Klein (1854–1926) 576 Peter Lewisch 45 Etienne Laspeyres (1834–1913) 585 Wolfgang Drechsler 46 Friedrich List (1789–1846) 590 Arno Mong Daastöl 47 Achille Loria (1857–1943) 607 Giampaolo Frezza and Francesco Parisi 48 Karl Marx (1818–83) and Friedrich Engels (1820–95) 618 Heath Pearson 49 Carl Menger (1840–1921) 627 Richard E. Wagner 50 Plato (c. 427–349 BC) 635 Wolfgang Drechsler 51 Wilhelm Roscher (1817–94) 642 Erich Streissler 52 Emil Sax (1845–1927) 652 Manfred Prisching 53 Gustav von Schmoller (1838–1917) 662 Helge Peukert 54 Adam Smith (1723–90) 672 Helge Peukert 55 Werner Sombart (1863–1941) 683 Günther Chaloupek 56 Lorenz von Stein (1815–90) 689 Heinz Grossekettler 57 George Joseph Stigler (1911–92) 700 Peter R. Senn 58 Pietro Trimarchi (1934–) 709 Giampaolo Frezza and Francesco Parisi 59 Thorstein Veblen (1857–1929) 727 Heath Pearson 60 Max Weber (1864–1920) 733 Helge Peukert 61 Christian Wolff (1679–1754) 745 Wolfgang Drechsler Index 751 viii The Elgar companion to law and economics ix Figures 5.1 Game matrix 79 10.1 The unilateral hold-up problem 149 10.2 The bilateral hold-up problem 149 12.1 Role of institutions in economic integration 214 13.1 Classic prisoner’s dilemma 229 13.2 Modified prisoner’s dilemma 233 16.1 Pay-off matrix of the EU 274 16.2 Games: pay-off matrices 276 16.3 Games: tied hands matrices 278 23.1 Scheme of different environmental policy instruments 351 32.1 Sombart’s modern capitalism 460 x Tables 7.1 A systematic representation of family law 104 15.1 Optimal remedies for externalities 251 16.1 Features of EU institutional bodies 264 19.1 Codetermination as an interlocking system 297 21.1 The Treuhand legacy 329 33.1 Different approaches to law and economics 468 [...]... located, or the man who owns the 12 The Elgar companion to law and economics surface under which the cave is situated is no doubt dependent on the law of property But the law merely determines the person with whom it is necessary to make a contract to obtain the use of the cave Whether the cave is used for storing bank records, as a natural gas reservoir, or for growing mushrooms depends, not on the law of... publishes the Journal of Law and Economics and the Journal of Legal Studies Closer to the Yale approach is the Journal of Law, Economics and Organization A more formal approach is taken by the International Review of Law and Economics and applied issues, particularly in a European context, are the focus of the European Journal of Law and Economics References Ackerman, Susan Rose (1992), Re-Thinking the Progressive... The comprehensive set of chapters in the Companion, mainly in the Chicago tradition of law and economics (Posner and Parisi, 1997), allows us to focus on other mainly European aspects of law and economics and the historical sources of law and economics research, which explains its structure (Bouckaert and de Geest, 1999) The Companion has not only been updated and revised for its second edition, but... and Wellisz,76 20 The Elgar companion to law and economics however, the use of strategic behaviour in the process of contract formation risks altering such a result.77 Elaborating on this variation on the general theme of distributional effects, Callabresi and Wellisz observe that the change in the rule of law creates the conditions for possible extortion on the part of the rights holders against the. .. Farmers will either have to bear the burden of the injury caused by the livestock or agree to pay the price demanded by the ranchers, whichever is less, assuming costless negotiation Under this liability rule, the cost of ranching will not reflect the cost imposed on the farmers The transfer of rights and liability from one group to another will, therefore, result in a shift in the relative wealth and costs... Stigler – and to some extent endorsed by Calabresi – while resolving a problem on one side, immediately creates a problem on the other Regan and other commentators direct their attention to this point of collateral effect.64 An account of their reasoning and a tentative assessment of their findings follow in the next section 18 The Elgar companion to law and economics From property rights to individual... ranchers into reducing the number of animals in their herds Conversely, by assigning the right to the farmers, we force the ranchers to compensate the farmers for the damage to their crops Because of these side payments, the different assignment of rights makes its mark on the profitability of the two activities, and on the value of the resources irreversibly invested in those enterprises According to this... that, if the right is assigned to the farmer, then the cost of the rancher’s liability will be discounted from the price necessary to acquire or rent the ranching business The land destined for the activity of the rancher, subsequent to the shift of liability will be less valuable Analogously, the farming land, protected by the liability rule, will yield a greater revenue and will consequently demand a... fiction rather Coase theorem and transaction cost economics in the law 15 than a real possibility, and that by unveiling such a fiction, the theorem remains a mere tautology The following sections will discuss in greater detail the significance of these criticisms, and the impact that the emerging debate has had on the traditional approach to legal interpretation The self-curing failures of the Coasean... the other individuals who are bound by the rule The argument is that individuals are likely to threaten the use of their own rights in a measure which exceeds the optimal level, in order to maximize the gain from the release of their own legal entitlements.78 In our example, if the right is assigned to the ranchers, they will be induced to threaten to increase the size of the cattle herds in order to . THE ELGAR COMPANION TO LAW AND ECONOMICS The Elgar Companion to Law and Economics Second Edition Edited by Jürgen. (3rd edn), Boston, MA: Little Brown. 4 The Elgar companion to law and economics Posner, Richard E. and Francesco Parisi (1997), Law and Economics, I–III,