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Homo Economicus, Behavioural Sciences, and Economic Regulation: On the Concept of Man in Internal Market Regulation and its Normative Basis

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Law and Economics in Europe

Part of the book series: Economic Analysis of Law in European Legal Scholarship ((EALELS,volume 1))

Abstract

We investigate how EU law conceptualizes the individual to whom internal market regulation is addressed. Our analytical point of departure is a stylized information paradigm , whereby for reasons of internal market benefits, market players have to bear the burden of perceiving and processing information that is relevant in respect of an intended transaction, as well as disadvantages should they be ill-equipped to cope with this assignment. Although the ECJ implemented the normative concept of a well-informed, observant and circumspect consumer, it never adopted such a stylized information paradigm . The EU legislature assists market players in perceiving and processing information, and even seeks to steer their decision-making process. We reconsider whether or to what extent this should be understood as an advancement of an information paradigm or rather as a “behavioural turn”. Only a differentiated approach that balances the internal market rationale with potentially conflicting rights meets the exigencies of EU law.

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Notes

  1. 1.

    Article 3(3)1 TFEU.

  2. 2.

    Cf. the definition of “regulation” adopted by Black, p. 1.

  3. 3.

    Now officially named “Court of Justice of the European Union”, see Section 5, Articles 251 et seq. TFEU. Hereinafter we will refer to it as “the Court” or the “ECJ”.

  4. 4.

    European Council, European Council 23 and 24 March 2000, Lisbon, Presidency Conclusions; Radaelli, ‘Regulation’, pp. 190 et seqq.

  5. 5.

    European Governance – A white paper, COM (2001) 428 final; see for an assessment Trubek and Trubek, pp. 539 et seqq.

  6. 6.

    See Radaelli, ‘Measuring’, pp. 108 et seqq.

  7. 7.

    Cf. Alemanno, ‘Better Regulation’, pp. 382 et seqq.; Allio, pp. 19 et seq.; McColm, pp. 9 et seqq.; Radaelli, ‘Regulation’, pp. 190 et seqq.; Wiener, pp. 447 et seqq.

  8. 8.

    Cf. Mandelkern Group on Better Regulation, Final Report, 13 November 2001, p. 34: “Regulation must be viewed as a legal instrument with economic effects carried out through public institutions.”

  9. 9.

    Cf. Mandelkern Group on Better Regulation, Final Report, 13 November 2001, p. 37: “The review of existing regulation should be done […] regarding the effect of existing regulation on innovation, economic growth and employment.”

  10. 10.

    Comité Intergouvernemental Créé Par La Conférence De Messine, Rapport Des Chefs De Délégation Aux Ministres Des Affaires Etrangères, Doc. MAE 120 f/56 (1956), generally referred to as the “Spaak-Report”, p. 13: “The object of a European common market should be to create a vast zone of common economic policy, constituting a powerful unit of production and permitting a continuous expansion, an increased stability, an accelerated raising of the standard of living […]. To attain these objectives, a fusion of the separate markets is an absolute necessity. Through the increased division of labor, such a fusion will enable the wasting of resources to be eliminated […]. In an expanding economy, this division of labor is expressed […] by a relatively more rapid development, in the common interest, of the most economic production programs. Competitive advantage will, moreover, be determined less and less by natural conditions.” Translation taken from Ellis, p. 249.

  11. 11.

    See Irwin on the historical roots of classical free trade theory.

  12. 12.

    Ricardo, Chapter 7.

  13. 13.

    See Molle, pp. 35 et seq. and 67.

  14. 14.

    This is reflected, e.g., in recital (4) Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market, OJ 2007 L319/1: “It is vital, therefore, to establish at Community level a modern and coherent legal framework for payment services […] which is neutral so as to ensure a level playing field for all payment systems, in order to maintain consumer choice, which should mean a considerable step forward in terms of consumer cost, safety and efficiency, as compared with the present national systems.”

  15. 15.

    The 2007 survey among EU-25 samples of directors of better regulation came to this conclusion, see Claudio Radaelli and Fabrizio de Francesco, Regulatory Quality in Europe: Concepts, Measures, and Policy Processes.

  16. 16.

    See Ari Afilalo, Dennis Patterson and Kai Purnhagen, ‘Statecraft, the Market State and the Development of European Legal Culture’, for an analysis of the EU’s market-related agenda who assign this market-related rationale the feature of a distinct European legal culture.

  17. 17.

    See Smith, p. 160: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice.”

  18. 18.

    Akerlof, pp. 488 et seqq.; previously, Chamberlin, pp. 24–27, had already described the risk of adverse selection due to consumers’ ignorance of product quality.

  19. 19.

    See for an overview on market mechanisms that may counter informational deficits Franck, Absatzrecht, pp. 190–203.

  20. 20.

    See for an overview Franck, Absatzrecht, pp. 203–216.

  21. 21.

    The first formulation of the rationale behind the concept of a homo economicus is attributed to Mill, Essay 5, paras. 38 and 48.

  22. 22.

    Mathis, pp. 7–30.

  23. 23.

    Early works include Kunreuther and Slovic, pp. 64 et seqq.; Kahneman and Tversky , pp. 263–291; Robin Hogarth, Judgment and Choice, The Psychology of Decision; Daniel Kahneman , Paul Slovic and Amos Tversky , Judgment under Uncertainty: Heuristics and Biases. An illustrative survey of various insights presents Eisenberg, pp. 216–218. A popular science presentation has been produced by Richard H. Thaler and Cass Sunstein, Nudge, Improving Decisions About Health, Wealth, and Happiness.

  24. 24.

    Varian, Chapter 30.5, pp. 560 et seq. This point has also been stressed by law-and-economics scholars such as Schwartz, pp. 131 et seqq. and Posner , pp. 1551 et seqq.

  25. 25.

    Pardo and Patterson, pp. 1211 et seqq.

  26. 26.

    Bottalico, pp. 427 et seqq.; Frerichs, pp. 289 et seqq.

  27. 27.

    Selinger and Whyte, pp. 26 et seqq.

  28. 28.

    Alemanno, ‘Nudging Smokers’, pp. 32 et seqq.; Burgess, pp. 3 et seqq.; Amir and Lobel, pp. 17 et seqq.; Sunstein, ‘Humanizing’, pp. 3 et seqq.

  29. 29.

    Cf. the so-called “Segré-Report”, European Economic Community, The Development of a European Capital Market, Report of a Group of experts appointed by the EEC Commission (1966), pp. 225–238; see Ackermann, p. 237.

  30. 30.

    Steindorff, p. 195.

  31. 31.

    ECJ, 20 February 1979, Case 120/78, REWE v Bundesmonopolverwaltung für Branntwein, [1979] ECR 649, para. 13.

  32. 32.

    In fact, the rule of German law in question could be characterized as “information-related” as it was apparently only prohibited to market the product under the label “Cassis” or “fruit liqueur”. Viewed in this light, the judgment might be interpreted as dismissing one information-related regime as unnecessarily intrusive given the existence of a less intrusive but equally effective information based rule. However, in its later case-law the Court considered a domestic prohibition of certain publicity markings that were born by a product as an obstacle to intra-Community trade by nature as opposed to mere selling arrangements. The Court based this finding on the fact that such rules “may compel the importer to adjust the presentation of his products according to the place where they are to be marketed and consequently to incur additional packaging and advertising costs”, ECJ, 6 July 1995, Case C-470/93, Verein gegen Unwesen in Handel und Gewerbe Köln v Mars, [1995] ECR I-1936, para. 13. Against the background of this reasoning, it seems consequent to characterize a rule according to which a certain label may only be used for products that fulfill specified content-requirements as “content-related” and not as merely “information-related”.

  33. 33.

    See Usher, pp. 152 et seq.

  34. 34.

    The ECJ has consistently used this wording since its judgment of 16 July 1998, Case C-210/96, Gut Springenheide and Tusky v Oberkreisdirektion Steinfurt, [1998] ECR I-4657, para. 37. Prior to this decision the Court had already referred to the “[r]easonably circumspect consumer” as yardstick, ECJ, 6 July 1995, Case C-470/93, Verein gegen Unwesen in Handel und Gewerbe Köln v Mars, [1995] ECR, I-1923, para. 13: “Reasonably circumspect consumers may be deemed to know that there is not necessarily a link between the size of publicity markings relating to an increase in a product’s quantity and the size of that increase.”

  35. 35.

    ECJ, 2 February 1994, Case C-315/92, Verband Sozialer Wettbewerb v Clinique Laboratories and Estée Lauder, [1994] ECR I-317, para. 16; ECJ, 28 January 1999, Case C-77/97, Österreichische Unilever v Smithkline Beecham Markenartikel, [1999] ECR I-431 para. 27; ECJ, 24 October 2002, Case C-99/01, Linhart and Biffl, [2002] ECR I-9375, para. 26.

  36. 36.

    ECJ, 9 August 1994, Case C-51/93, Meyhui v Schott Zwiesel Glaswerke, [1994] ECR I-3879, para. 11.

  37. 37.

    Steindorff, pp. 195 et seq.

  38. 38.

    See Weatherill, ‘Evolution’, pp. 423 et seqq.

  39. 39.

    Wilhelmsson, Contract Law, pp. 145 et seq.

  40. 40.

    The notion of an “information model” in the internal market context has subsequently been taken up by several authors, see inter alia the articles in Stefan Grundmann, Wolfgang Kerber and Stephen Weatherill, Party Autonomy and the Role of Information in the Internal Market.

  41. 41.

    AG Capotorti, 16 January 1979, Case 120/78, Rewe v Bundesmonopolverwaltung für Branntwein, [1979] ECR 666, 673: “But the idea of this widespread, if not general, incapacity on the part of the consumer seems to me to doom to failure any effort to protect him, unless it be to impose upon him a single national product the composition of which is constant and is rigorously controlled.”

  42. 42.

    Cf. Wilhelmsson, Contract Law, pp. 145 et seq.: “[…] one can claim that the consumer model prevailing in the Community is a well-informed and well-to-be-informed consumer – the active internal market consumer – who can and should decide on his own affairs and at his own risk.”

  43. 43.

    Steindorff, pp. 195 et seq.

  44. 44.

    ECJ, 13 December 1990, Case C-238/89, Pall, [1990] ECR I-4827, paras. 18–21; ECJ, 2 February 1994, Case C-315/92, Verband Sozialer Wettbewerb v Clinique Laboratories and Estée Lauder, [1994] ECR I-317, paras. 19–23; ECJ, 4 April 2000, Case C-465/98, Darbo, [2000] ECR I-3397, paras. 21–34; ECJ, 24 October 2002, Case C-99/01, Linhart and Biffl, [2002] ECR I-9375, paras. 31–35.

  45. 45.

    Hesselink, p. 327.

  46. 46.

    See in general on European consumer law Weatherill, ‘Consumer Protection’, pp. 221 et seqq.

  47. 47.

    Cf. ECJ, 22 June 1999, Case C-342/97, Lloyd Schuhfabrik Meyer v Klijsen Handel, [1999] ECR I-3819, para. 26.

  48. 48.

    ECJ, 13 January 2000, Case C-220/98, Estée Lauder, [2000] ECR I-117, para. 28; see also ECJ, 24 October 2002, Case C-99/01, Linhart and Biffl, [2002] ECR I-9375, para. 31.

  49. 49.

    See Grundmann, Kerber and Weatherill, Party Autonomy, p. 7.

  50. 50.

    Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the prospectus to be published when securities are offered to the public and admitted to trading, OJ 2003 L 345/64.

  51. 51.

    Directive 2002/83/EC of the European Parliament and of the Council of 5 November 2002 concerning life assurance, OJ 2002 L 345/1.

  52. 52.

    Regulation (EC) No 1907/2006 of the European Parliament and of the Council of 18 December 2006 concerning the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) and establishing a European Chemicals Agency, OJ 2006, L 136/3.

  53. 53.

    The standard example is Directive 2001/104/EC of the European Parliament and of the Council of 7 December 2001 concerning medical devices, OJ 2002, L 6/50. See on the EU’s new approach regulation Hodges, pp. 22 et seqq. where a list of new approach legislation is provided.

  54. 54.

    Directive 2001/37/EC of the European Parliament and of the Council of 5 June 2001 on the approximation of the laws, regulations and administrative provisions of the Member States concerning the manufacture, presentation and sale of tobacco products, OJ 2001 L 194/26.

  55. 55.

    ECJ, 16 May 1989, Case 382/87, Buet and another v Ministère public, [1989] ECR 1235, para. 13.

  56. 56.

    Id., para. 14.

  57. 57.

    See Howells and Wilhelmsson, p. 381 (“The protection of the weak and vulnerable consumers has probably never been very high on the agenda of Community law”).

  58. 58.

    Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market and amending Council Directive 84/450/EEC, Directives 97/7/EC, 98/27/EC and 2002/65/EC of the European Parliament and of the Council (“Unfair Commercial Practices Directive”), OJ L 149/22, 2005.

  59. 59.

    Cf. Micklitz, p. 71.

  60. 60.

    Recital (18): “In line with the principle of proportionality, and to permit the effective application of the protections contained in it, this Directive takes as a benchmark the average consumer, who is reasonably well-informed and reasonably observant and circumspect […] as interpreted by the Court of Justice […].”

  61. 61.

    There is no need to say that it is far from obvious where one should draw the line in those cases, cf. Micklitz, p. 88.

  62. 62.

    Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights, amending Council Directive 93/13/EEC and Directive 1999/44/EC of the European Parliament and of the Council and repealing Council Directive 85/577/EEC and Directive 97/7/EC of the European Parliament and of the Council, OJ L 304/64, 2011.

  63. 63.

    See on the need of the protection of minors in their role as consumers Pessers, pp. 2 et seqq.

  64. 64.

    Directive 2010/13/EU of the European Parliament and of the Council of 10 March 2010 on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the provision of audiovisual media services, OJ 2010 L 95/1.

  65. 65.

    See e.g. Article 6(2) Directive 2002/46/EC of the European Parliament and of the Council of 10 June 2002 on the approximation of the laws of the Member States relating to food supplements, OJ 2002 L 183/51; Article 8 Directive 2009/39/EC of the European Parliament and of the Council of 6 May 2009 on foodstuffs intended for particular nutritional uses (recast), OJ 2009 L 124/21.

  66. 66.

    Article 9(1)(f) Audiovisual Media Services Directive.

  67. 67.

    Council Directive 76/768/EEC of 27 July 1976 on the approximation of the laws of the Member States relating to cosmetic products, OJ 1976 L 262/169.

  68. 68.

    Article 69(1) Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (recast), OJ 2009 L 302/32.

  69. 69.

    Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market, OJ 2000 L 178/1.

  70. 70.

    Directive 2008/122/EC of the European Parliament and of the Council of 14 January 2009 on the protection of consumers in respect of certain aspects of timeshare, long-term holiday product, resale and exchange contracts, OJ 2009 L 33/10.

  71. 71.

    Article 3 Directive 98/6/EC of the European Parliament and of the Council of 16 February 1998 on consumer protection in the indication of the prices of products offered to consumers, OJ 1998 L 80/27.

  72. 72.

    Article 32(2) Regulation (EU) No 1169/2011 of the European Parliament and of the Council of 25 October 2011 on the provision of food information to consumers, OJ 2011 L 304/18.

  73. 73.

    Commission Directive 2006/141/EC of 22 December 2006 on infant formulae and follow-on formulae and amending Directive 1999/21/EC, OJ 2006 L 401/1.

  74. 74.

    Directive 2002/46/EC of the European Parliament and of the Council of 10 June 2002 on the approximation of the laws on the Member States relating to food supplements, OJ 2002 L 183/51.

  75. 75.

    Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments, OJ 2004, L 145/1.

  76. 76.

    Directive 2002/92/EC of the European Parliament and of the Council of 9 December 2002 on insurance mediation, OJ 2003 L 9/3.

  77. 77.

    Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments, OJ 2004, L 145/1.

  78. 78.

    Franck, Absatzrecht, pp. 305–319.

  79. 79.

    See e.g. the law-and-economics analysis by Grundmann and Kerber, pp. 264 et seqq.

  80. 80.

    The term “experience good” has been established by Nelson, pp. 311 et seqq., to characterize products whose quality can hardly be observed in advance but only upon consumption. Darby and Karni, pp. 68 et seq., introduced the concept of “credence goods” for goods whose quality consumers may not judge even after they consumed them.

  81. 81.

    Cf. recital (2) Markets in Financial Instruments Directive: “In recent years more investors have become active in the financial markets and are offered an even more complex wide-ranging set of services and instruments.”

  82. 82.

    Cf. Sunstein and Thaler, pp. 1159 et seqq.

  83. 83.

    Annex I no. 9 Tobacco Products Directive.

  84. 84.

    See http://ec.europa.eu/health/tobacco/law/pictorial/index_en.htm.

  85. 85.

    See Alemanno, ‘Nudging Smokers’, pp. 32 et seqq.

  86. 86.

    Commission Directive 2006/141/EC of 22 December 2006 on infant formulae and follow-on formulae and amending Directive 1999/21/EC, OJ 2006 L 401/1.

  87. 87.

    But see on potential negative effects of breastfeeding promotion Lee, pp. 1075 et seqq.

  88. 88.

    Grundmann, p. 510.

  89. 89.

    ECJ, 5 February 1963, Case 26/92, van Gend en Loos v Nederlandse Administratie der Belastingen, [1963] ECR 1, 12.

  90. 90.

    Franck, Absatzrecht, p. 330.

  91. 91.

    See Eidenmüller , pp. 329–333.

  92. 92.

    See Müller-Graff, pp. 133–150.

  93. 93.

    This terminology is borrowed from Wilhelmsson, Contract Law, p. 126 (“Therefore it is easy to see that the concept pair content-neutrality/content-orientation is quite closely related to another concept pair […] the concepts are market-rational and market-rectifying regulation ”).

  94. 94.

    Gómez, p. 199.

  95. 95.

    See infra Sect. 13.5.

  96. 96.

    Franck, ‘Wert ökonomischer Argumente’, para. 27.

  97. 97.

    ECJ, 11 July 2002, Case 60/00, Mary Carpenter v Secretary of State for the Home Department, [2002] ECR I-6279, para. 39.

  98. 98.

    ECJ, 12 June 2003, Case C-112/00, Eugen Schmidberger, Internationale Transporte und Planzüge v Republik Österreich, [2003] ECR I-5659, para. 74; ECJ, 11 December 2007, Case C-438/05, International Transport Workers’ Federation and Finnish Seamen’s Union v Viking Line ABP and OÜ Viking Line Eesti, [2007] ECR I-10779, para. 45; ECJ, 18 December 2007, Case C-341/05, Laval un Partneri Ltd v Svenska Byggnadsarbetareförbundet and Others, [2007] ECR I-11767, para. 93.

  99. 99.

    ECJ, 12 June 2003, Case C-112/00, Eugen Schmidberger, Internationale Transporte und Planzüge v Republik Österreich, [2003] ECR I-5659, para. 81.

  100. 100.

    Weiler, p. 332.

  101. 101.

    See Article 3(1) EU Charter of Fundamental Rights.

  102. 102.

    See supra at note 48.

  103. 103.

    Wilhelmsson, ‘Confident Consumer’, p. 319.

  104. 104.

    ECJ, 12 June 2003, Case C-112/00, Eugen Schmidberger, Internationale Transporte und Planzüge v Republik Österreich, [2003] ECR I-5659, para. 82.

  105. 105.

    ECJ, 17 July 1997, Case C-183/95, Affish BV v Rijksdienst voor de Keuring van Vee an Vlees, [1997] ECR I-4362, para 43; approved in ECJ, 19 April 2012, Case C-221/10 P, Artegodan GmbH v European Commission, [2012] ECR I-0000 (nyr), para 99.

  106. 106.

    When common safety concerns are at stake, public health is according to Article 4(2)(k) TFEU part of the EU’s shared competence regime, while human health is according to Article 6(a) TFEU only within the EU’s competence to carry out actions to support, coordinate or supplement the actions of the Member States.

  107. 107.

    ECJ, 5 October 2000, C-376/98 Federal Republic of Germany v European Parliament and Council of the European Union (Tobacco I), [2000] ECR I-8419, para. 88.

  108. 108.

    See Article 20(2)(a) and Article 21 TFEU.

  109. 109.

    See Article 20(2)(b) and Article 22 TFEU.

  110. 110.

    Article 20(2) TFEU and Articles 21 to 24 TFEU.

  111. 111.

    Article 20(2) 1st sentence TFEU.

  112. 112.

    See Dennis-Jonathan Mann and Kai Purnhagen, ‘The Nature of Union Citizenship between Autonomy and Dependency on (Member) State Citizenship – A Comparative Analysis of the Rottmann Ruling, or: How to Avoid a European Dred Scott Decision?’.

  113. 113.

    See ECJ, 20 September 2001, Case C-184/99, Rudy Grzelczyk v Centre public d’aide sociale d’Ottignies-Louvain-la-Neuve, [2001] ECR I-6193, paras. 29–37.

  114. 114.

    ECJ, 23 March 2004, Case C-138/02, Brian Francis Collins v Secretary of State for Work and Pensions, [2004] ECR I-2703, paras. 61–63.

  115. 115.

    Cf. Weatherill, EU Law, p. 463.

  116. 116.

    Maduro, p. 340.

  117. 117.

    See from the perspective of consumer policy Davis, p. 249.

  118. 118.

    ECJ, 5 October 2000, Case C-376/98, Federal Republic of Germany v European Parliament and Council of the European Union, [2000] ECR I-8419, para. 84.

  119. 119.

    Ehlermann, p. 388; Craig and de Búrca, p. 618.

  120. 120.

    See supra note 41.

  121. 121.

    Cf. ECJ, 13 May 1997, Case C-233/94, Federal Republic of Germany v European Parliament and Council of the European Union, [1997] ECR I-2405, para. 48: “Admittedly, there must be a high level of consumer protection […]; however, no provision of the Treaty obliges the Community legislature to adopt the highest level of protection which can be found in a particular Member State.”

  122. 122.

    Ehlermann, p. 389.

  123. 123.

    See for some accounts inter alia Hood, Rothstein and Baldwin, pp. 26 et seqq.

  124. 124.

    See Sunstein, Free Markets, pp. 130 et seqq.

  125. 125.

    Bottalico, pp. 427 et seqq.

  126. 126.

    Burgess, p. 12.

  127. 127.

    Bovens, p. 211.

  128. 128.

    Franck, ‘Wert ökonomischer Argumente’, para. 47.

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Acknowledgement

The authors would like to thank an anonymous reviewer for valuable comments.

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Authors and Affiliations

  1. Faculty of Law, Ludwig-Maximilian University of Munich, Ludwigstraße 29/III, 80539, Munich, Germany

    Jens-Uwe Franck

  2. Law and Governance Group, University of Wageningen and Erasmus University of Rotterdam, Hollandseweg 1, 6706 KN, Wageningen, the Netherlands

    Kai Purnhagen

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  1. Jens-Uwe Franck
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Correspondence to Jens-Uwe Franck or Kai Purnhagen .

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  1. Faculty of Law, University of Lucerne, Lucerne, Switzerland

    Klaus Mathis

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Franck, JU., Purnhagen, K. (2014). Homo Economicus, Behavioural Sciences, and Economic Regulation: On the Concept of Man in Internal Market Regulation and its Normative Basis. In: Mathis, K. (eds) Law and Economics in Europe. Economic Analysis of Law in European Legal Scholarship, vol 1. Springer, Dordrecht. https://doi.org/10.1007/978-94-007-7110-9_13

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