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How to build European private law: an economic analysis of the lawmaking and harmonization dimensions in European private law

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Abstract

In the process of building a European Private Law, the lawmaking and harmonization dimensions—the modes of harmonization and even more, the scope and reach of the harmonizing effect of the European rules- appear as crucial issues. We show how the harmonization strategy is as important a question as whether we should have European Private Law at all. We present an economic discussion of the different modes of harmonizing Private Law in the abstract, and how they are likely to differently affect outcomes. We also present in informal terms a simple economic model of how to build optimal harmonized rules and standards in a setting of pre-existing separate and diverse national ones, and we systematically explore how the different harmonization regimes (maximum harmonization, minimum harmonization, and pure co-existence of harmonized and national standards) affect the outcomes of the harmonization process.

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Notes

  1. Commission Decision of 26 April 2010 (2010/233/EU) setting up the Expert Group on a Common Frame of Reference in the area of European contract Law (OJ L 105, 27.4.2010). See, Proposal for a Regulation of the European Parliament and of the Council on a Common European Sales Law, of 11.10.2011 (COM (2011) 635 final).

  2. See, Green Paper from the European Commission on policy options for progress towards a European Contract Law for consumers and businesses, of 1 July 2010 (COM (2010) 348 final).

  3. The spelled-out options include: (1) The publication on the web of non-binding model contract rules which could be used in the Single Market; (2) a toolbox for current and future EU lawmakers; (3) a Contract Law Commission Recommendation that would call on EU Member States to include the European contract law instrument into their national legal systems; (4) an optional European Contract Law instrument, which could be chosen freely by consumers and businesses in their contractual relations as an alternative to the existing national contract laws for cross-border contracts, or also for domestic contracts; (5) Harmonisation of national contract laws by means of an EU Directive; (6) Full harmonisation of national contract laws by means of an EU Regulation; (7) the creation of a full-fledged European Civil Code, replacing all national rules on contracts.

  4. See, Wagner (2002: 995); Faure (2003: 31); Wagner (2005: 27); Van Den Bergh and Visscher (2006: 511); Garoupa and Ogus (2006: 339); Kerber and Grundmann (2006: 215); Wagner (2007); Gomez (2008: 89); Chirico (2008); Van Boom (2009); Parisi and Fon (2009: 51); Gomez (2010a: 401), Gomez (2010b).

  5. Among others, Gomez (2009: 101); the different contributions on the content of the DCFR in Wagner (2009); Chirico and Larouche (2009).

  6. See, Gomez (2008: 89), Gomez (2009: 101), Gomez (2010a); Gomez and Ganuza (2010); Ganuza and Gomez (2010).

  7. See, Proposal of 8.10.2008 for a Directive on consumer rights, COM (2008) 614 final. There is a revised proposal of December 2009, prepared during the Swedish Presidency of the Council.

  8. Due to later developments and views in the Parliament and Council the initial staunch full harmonization effect seems to be weakening towards some kind of quite undefined "targeted" (i.e. partial or incomplete) full harmonization.

  9. Part of the literature uses the term convergence precisely to label these kinds of processes: Van Gerven (2004: 994); Garoupa and Ogus (2006: 339).

  10. We are agnostic towards the empirical significance of the three different forces that I will describe in the text. I think there may be examples and illustrations, even important ones, of actual levels of harmonization produced by such forces, but I am unaware of a general assessment of the importance of the harmonized outcome, or the empirically supported causal contribution of herd behaviour, competition, and knowledge diffusion.

  11. See, for an economic examination of those costs, Ribstein and Kobayashi (1996: 131); Garoupa and Ogus (2006: 339). Costs may be even endogenous to the harmonization process, so they may be strategically raised by countries to improve their positions in the harmonization exercise: see, Carbonara and Parisi (2007: 367).

  12. For surveys—somewhat dated, however- of the economic literature on herd behaviour and informational cascades, see Bikhchandani et al. (1998: 151); Hirshleifer (1998). The founding contributions of this literature are: Banerjee (1992: 797); Bikhchandani et al. (1992: 992).

  13. Though it is to some extent dated, this view of the Corporate Law market has been—and still is—very influential in the US: see, Easterbrook and Fishel (1982: 913); Romano (1985: 225). Many do not share the idea that such a competitive market exists in Corporate Law, at least in a recognizable form: Kahan and Kamar (2002: 679); Roe (2003: 588); Bar-Gill et al. (2006: 134); Gomez and Saez (2006: 161); O’Hara and Ribstein (2009: Chap. 6).

  14. On a similar vein, though less specific about the legal fields in which harmonized legal rules are expected to be observed, Parisi and Fon (2009: 69). Some commentators strongly deny that such convergence has occurred more than superficially in European Private Law: Legrand (1996: 52). It must be noted, however, that those proponents of the view of competitive convergence of facilitative Law also emphasize the importance of some hurdles in the way of the convergence outcome: Ogus (1999: 411–412).

  15. And legal transplants are very important not only for the development of legal systems, but also for social and economic development more generally: see, Berkowitz et al. (2003: 165); La Porta et al. (2008: 285). Among comparative lawyers, the controversy whether legal transplants is at all possible is rampant: Watson (1993, 2000). In turn, Legrand (1997: 111), fervently denies that legal transplants exist in a meaningful way.

  16. To illustrate the distinction: a substantially similar legal transplant may be the product of spontaneous convergence (country A decides to imitate the Laws of country B on a given area of the Law) or the result of a coordination game of harmonization (country A and country B enter a negotiation process to approximate their Laws, and use the Laws of country B as a starting point for what would be end result of the harmonization).

  17. See, on the recent case Law of the ECJ on these matters, Weatherill (2009: 149).

  18. See, Proposal of 8.10.2008 for a Directive on consumer rights, COM (2008) 614 final.

  19. See, for a collection of these criticisms addressed to the full harmonization approach in this area, Faure (2008: 440); Rott and Terre (2009: 460); Micklitz and Reich (2009: 471); Whittaker (2009: 223); Twigg-Flessner and Metcalfe (2009: 368); Smits (2010: 9); Low (2010: 288); Ebers (2010); Loos (2010).

  20. The model of co-existence and choice between harmonized rules and national rules is argued forcefully by Kerber and Grundmann (2006: 215); Grundmann (2005: 184). For a specific version of co-existence, in the area of B2C e-commerce (the so-called "Blue-button" proposal, see Schulte-Nölke (2007: 333). Against the possibility of co-existence, arguing that it would eliminate all the benefits that may ensue from harmonization, Doralt (2010).

  21. See, for a more detailed presentation of these complexities, Colombi Ciacchi (2009: 3).

  22. Remember, if no discernible effect over cross-border transactions takes place as a consequence of the harmonization process, this will be essentially moot, and thus essentially a waste of resources and energy, unless there are other benefits of an entirely different kind (intellectual spillovers over national legal orders, increased sense of a common destiny and even identity, and so on) which are beyond the scope of our economic theory of harmonization of legal rules, and whose magnitude, and even existence, is very hard to assess.

  23. See note 20 above.

  24. Under full or maximum harmonization, given that the harmonized standard wipes out entirely the national ones, there is no room for strategic reactions by the national lawmakers in view of the new harmonized rules. Under minimum harmonization, however, given that only standards that are lower than the level imposed by the harmonized rules are eliminated, but higher ones remain always possible, national lawmakers could increase the existing standards in order to countereffect the harmonizing—and market-opening-effects of the agreed standards. If these reactions are possible, then the lawmaker in charge of the harmonization exercise should take this into account and react accordingly at the time of building the harmonized standards. In order to simplify the analysis, we do not allow for this possibility, even if not discarding the plausibility of this complication, and even its empirical relevance. It must be pointed out, however, that this opportunity for strategic behavior by national lawmakers that minimum harmonization allows would be a comparative disadvantage of minimum harmonization versus full harmonization and pure co-existence, where there is no room for these undesirable maneuvers by national lawmakers.

  25. This is probably an exaggeration, since even under full harmonization of a given area of the Law, however ample this may be (such as Private Law) many important features and properties of the national legal systems will remain separate and diverse (procedures, courts, legal culture and tradition, and so on). This will obviously reduce the positive impact of full harmonization in promoting cross-border transactions. See, for this and similar arguments, Gomez (2008: 89); Low (2010: 288).

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Acknowledgments

We are grateful to participants at the Comparative Law and Economics Forum in Madrid, the Latin American and Caribbean Law and Economics Conference in Barcelona, and seminars at the Universities of Bologna, Bolzano, Tilburg, and Münster, for helpful comments and suggestions on earlier versions of the paper, to the Spanish Ministry of Innovation and Science for financial support, and to Marian Gili and Laura Alascio for excellent research assistantship. It must be disclosed that one of the authors (Fernando Gomez) is a member of the Expert Group on a Common Frame of Reference in the area of European Contract Law set out by the European Commission, although the opinions expressed in this paper are strictly individual, and unrelated to the membership in that Group, and thus, are not those of the Expert Group, nor of any other of its members, nor of the European Commission.

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  1. School of Law, Universitat Pompeu Fabra, Ramon Trias Fargas 25-27, 08005, Barcelona, Spain

    Fernando Gomez

  2. Department of Economics and Business, Universitat Pompeu Fabra, Ramon Trias Fargas 25-27, 08005, Barcelona, Spain

    Juan Jose Ganuza

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Gomez, F., Ganuza, J.J. How to build European private law: an economic analysis of the lawmaking and harmonization dimensions in European private law. Eur J Law Econ 33, 481–503 (2012). https://doi.org/10.1007/s10657-011-9282-3

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