Seminar 4

Comparative Law and Economics

In this seminar we look at the work of Ugo Mattei, who pioneered what he calls comparative law and economics.  The readings include a general methodological paper, plus two case studies of the method being applied. I have also added an alternative reflection on comparative law and economics from Anthony Ogus, who is one of the leading British scholars working on law and economics; his work is generally also more circumspect than that of Posner/Becker.

 Reading

 Mattei ‘Efficiency in Legal Transplants: an Essay in Comparative Law and Economics’ (1994) 14 International Review of Law and Economics 3

 Ogus ‘Competition between National Legal Systems: A Contribution of Economic Analysis to Comparative Law’ (1999) 48(2) International and Comparative Law Quarterly 405

 AND ONE FROM

 Hansmann and Mattei, ‘The Functions of Trust Law: a Comparative Legal and Economic Analysis’ (1998) 73 New Yor University Law Review 434

 Mattei ‘The Comparative Law and Economics of Penalty Clauses in Contracts’ (1995) 43(3) American Journal of Comparative Law  427

4 comments on “Seminar 4

  1. Irina Domurath says:

    A comment on Mattei and Ogus

    Combining a law and economics with a comparative approach to law, Mattei analyses the change in legal system through legal transplants. He contends that competition between legal systems significantly affects the evolution of law and that this has not as much to do with prestige as with the economic efficiency of the transplanted rules. He exemplifies with property law (compensation in the case of takings), international commercial contract law (being largely concerned with the choice between different legal rules), the choice of law for the establishments of corporations, and penalty clauses in contracts (1995 article). Most of his examples thus have a strong contract and property law emphasis or connection, and consequently predominantly focus on economic activity.

    Even though Mattei acknowledges that there are “transplant resistant” areas of law, and thus comes close to stepping beyond the orthodox economic paradigm of rational behaviour, he defines those areas of law in a rather narrow way as being based on parochial legal traditions. And even in these fields, he claims, efficiency consideration do play a role, however hidden they might be behind different technicalities of legal systems. So according to Mattei, in the end, rationality considerations transcend even parochial legal systems. It would have been interesting to see how Mattei’s findings transpose to other areas of law. For example, could efficiency considerations play a role in modern welfare law as well? How does his approach work for field of law in which the law is not or less concerned about facilitating economic transactions?

    Ogus applies Mattei’s approach to the question of whether harmonisation of legal principles rules is desirable from an efficiency-led perspective. He denies. His insightful analysis rests upon a clear-cut distinction between homogeneous and heterogeneous legal products. He contends that convergence, or spontaneous harmonization, will occur when legal systems compete in field of law designed to facilitate trade (homogeneous legal products), so that there is no need for proactive harmonization and that even in relation to heterogeneous products the justification for harmonization might be weak from an economic standpoint. We could, however, question whether the distinction between homogeneous and heterogeneous legal products is a realistic one. There are certainly fields of law in which such clear-cut distinction is not possible. For example, the field of consumer protection clearly cuts across this distinction: on the one hand, there is the economic activity of entering into an agreement with a (professional) seller on the purchase of a good or service; on the other hand, consumer law is regulatory (“interventionist“) law with regard to its rationale of protecting the weaker parties of economic transactions. Does Ogus’ research result, that concerning both legal products the case for harmonization is weaker than conventionally assumed, still apply when contract law fulfils a regulatory role?

  2. Argyri says:

    I thought of this week’s readings as offering plenty of arguments in favor of federal systems, the rationale behind federalism as conceived in the US and to a certain extent the EU. The flexibility that these systems offer is due to the experimentation that can take place in the different jurisdictions with different rules. As shown from the readings, through competition between the different legal solutions in different jurisdictions the most efficient should, in principle, emerge and prevail.
    What Ogus identifies as the longstanding debate on convergence, is I think very difficult to solve. While I am convinced that international trade is indeed facilitated by common standards in electrical appliances, for example, meaning that it might be much more efficient and beneficial to the consumer to have the same or compatible plugs in electrical devices internationally, I am not equally convinced that we should, to take another example, force identical level of free speech protection to the US and to the European countries. Because while people tend to have minimum to zero ideological preferences on things like electrical appliances and plugs, they seem to have strong ideological preferences on issues such as the Holocaust denial, a crime in Germany and France, protected free speech in the US. In this sense, I agree with Mattei’s argument that where ideological problems are less strong, efficient convergences are more likely to occur (1994 article, p. 15) and also, equally, with the conclusion from Ogus in his article.
    As suggested, physical migration is the possible alternative to firms who want to select the most favorable jurisdiction to their business (Ogus , p. 408). The obvious objection here is the problems associated to forum shopping, problems that harmonization of laws would be able to avoid.
    To take the example of free speech protection again, the more value a citizen places on free speech, the more is physical migration to jurisdictions with strong free speech protection an attractive alternative.
    The last point I wanted to add is that in examples like the one I used with the right level of free speech protection, Internet has added lots of complexities today. As a medium that does not see physical boundaries, it pushes more towards harmonized standards at times when jurisdictional boundaries in law still exist. I think it is a good example to experiment whether the most efficient solutions do or will prevail in this global medium, a medium that, as has proven, can connect people beyond jurisdictions in a rather unprecedented way.

  3. Haukur says:

    Coming from a small country, which borrows most of its new laws from other countries (mostly Scandinavia) or receives them from Brussels via the EEA Agreement, I can’t say that those papers were a particular revelation. Yes the legislator will of course consider solutions from different countries before adopting its own version and try to do it as sensibly as possible. And yes family law is more resistant to external influences then trade law due to obvious practical reasons. Perhaps I simply just missed the point.

    Another element I believe is important to consider regarding legal transplant, especially concerning trade and company law, is the balance of political power within the receiving society. A certain solution my on the face of it seem more efficient then another, but due to a particular power structure the less efficient solution gets chosen. This is apparent for example in how some States tend to protect national champions in competition against foreign companies even though it would be more efficient for the population of the State as a whole to not aid the inefficient company. EU’s agricultural policy could be mentioned as another example where an obscure political power structure results in an absurdly inefficient legal regime.

    Ogus states that; ‘lawyers constitute perhaps the most influential pressure group in relation to law reform.’ I think this is bit of an overstatement with regards to many areas of law. Especially in categories where genuine interest are at stake. Usually the groups which hold power and the groups that have interests are those who have the highest impact on the outcome of legal reform. They may act through their lawyers, but lawyers as such I believe are not that important with regards to policy choices.

  4. Marios says:

    Since my thesis is both about EU Competition Law and WTO, I found Mattei’s and Ogus’s articles methodologically interesting. There are a number of studies arguing that the WTO should adopt the methodology of competition law when applying the anti-discrimination provisions of the GATT and the GATS, but as far as I remember, none of these studies has tried to justify such a “transplant” on grounds of efficiency. The argument is usually that both systems of law have the same objective (consumer welfare) hence they should have the same methodology.

    I also found the articles interesting for the whole debate of whether there are any self-contained legal systems and how (and why!?) they would achieve autarky – if we take the example of economies, free market economies (e.g. EU) do much better than autarkies (e.g. North Korea). Would not the same apply to legal systems then? And if so, why the obsession of fending off legal systems with barriers to entry and exit and calling them self-contained?

    Ogus discusses international trade a bit towards the end of the article, it would be interesting to develop those ideas further. The same applies on the discussion about the justification of harmonisation, race to the bottom, competition between legal rules etc (I think it would reveal new angles in the discussion surrounding for example the Services Directive -the hotly debated Bolkenstein draft- and also doctrine (e.g. how does all this relate to Maduro’s three different forms of economic constitution in the EU).

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