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Abstract: The Internet epitomizes globalisation. There are not many international treaties on Internet issues so far. For the time being, governance of the Internet by law will thus basically have to be governance by national law. Most cyber scholars are therefore in the business of exploring alternative governance tools. The typical approach is hybrid, combining state with non-state inputs, and using soft forms of governance, not command and control regulation. Against this background, this papers makes two related points. The preoccupation of the legal discourse with globalisation is partly misleading. The Internet has more and even more profound challenges to governance by law: the libertarian beliefs of many Internet activists; the egalitarian culture of Netizens; the ultra high speed of evolution; and the almost complete decontextualisation of Internet communication. Despite these many and profound challenges, Internet governance by law is not pointless. Separately, the law is able to parry each of these challenges, albeit to a varying degree. The law comes in more troubled waters, if these challenges compound. But even then, there is room left for the law. Policy makers should thus not rule the law out a limine. They should properly weigh the many advantages governance by law has over alternative institutions.
Internet regulation, cyberlaw, governance by law, command and control regulation, globalization, governing the egalitarians, governing decontextualized behaviour
Abstract: Deserves property protection? Some feel it is up to the legislator to decide. Others feel that this is none of the law's business. Both extreme positions overstate their cases. Property is an institution. Like any institution, it must be useful for a socially defined purpose. And it must do a better job than alternative institutions. If this can be demonstrated, property gains legitimacy in political discourse. Lawyers, especially constitutional lawyers, will rely on these arguments for teleological construction. There is a long list of services property renders society. Together with contract and competition, it runs a market economy. This institutional arrangement by far outperforms any competitor for allocating scarce resources. It also spurs innovation, and it gives creativity a socially beneficial direction. Good fences make good neighbours. Property makes free. It contributes to individual identity and helps socialise individuals. Owners care for their possessions, and they care for an environment in which they feel safe. There are counter-arguments too; but none of them is so strong that property should be replaced by alternative institutions. Some redistribution may be warranted. But it needs a strong economy in the first place, so that some of the income can be taken away for the needy. Society may want to place some goods, like donor organs, extra commercium. But this will be the exception, not the rule. Within close social relationship, respect for individual ability will count more than the literal fulfilment of one's obligations. But this cannot carry over to exchange between strangers. This paper provides an in-depth analysis of these, and many more, reasons pro and against legally protecting property. In so doing, it brings to bear knowledge from economics, psychology, political philosophy, and legal history. The concluding chapters extend the analysis to two more recent developments. Private property rights, like those created by copyright management systems, change the normative perspective. There is no longer a demand by the owners for legal protection. On the contrary, the law must make up its mind whether it wants to control this form of self-help. A critical issue is the shift from absolute property to mere access rights. It is, however, not as new as some observers want us make believe. Landlord and tenant is only one of the many classical instances. In normative perspective, this shift is conspicuously ambivalent. It in principle improves allocative efficiency, and it gives individuals with a small income access to goods which they hardly would be able to buy. But it creates an anti-commons situation, and it weakens competition. These developments therefore call for an open governmental property policy.
Abstract: In some industries, monopoly is natural. One provider can serve the relevant demand cheaper than two or more firms. If the monopoly is not contestable, i.e. not controlled by a credible threat of entry, regulation is necessary. The essential facilities doctrine is one such regulatory tool. It makes sense, if the following additional conditions are met: upstream or downstream markets are not themselves natural monopolies. The holder of the monopoly is also himself active on one of these markets. The opposite market side is unwilling to buy the components separately. The law can try to safeguard competition on the upstream and downstream markets by giving outside providers a legal right to access the "essential facility". Implementing such a legal right is a thorny endeavour, however. Regulatory agencies or the courts must determine a whole, complex long-term relationship. They must regulate price, quality, terms and conditions, implementation, adaptation to changed circumstances, coordination of competing demands of access. Under the conditions of the rule of law, this is highly ambitious. The paper demonstrates, how such an approach could perhaps become effective, nonetheless. And it compares the approach to alternative interventions: replacing the courts by arbitrators; ex ante altering negotiation power; corporatist solutions; structural separation; ex ante in stead of ex post regulation. The corporatist solution has the best performance, but it comes at a high price: rule of law and democratic control are almost completely abolished. Policy makers might in particular prefer to alter ex post legal intervention so that it becomes quicker, more reliable and better informed. This also entails costs in terms of rule of law and democracy, but they are much more modest.
Essential facility doctrine, natural monopoly, network industries, negotiated access, forced arbitration, corporatism, structural separation
Abstract: In the social sciences and in the law, currently governance is the dominant perspective. Institutions are interpreted as governance tools. This view is helpful, but overly narrow. This paper adds conflict, and conflict management, to the picture. It provides a systematic overview of conceptual tools for understanding conflict, drawing on insights from economics, sociology and psychology. It also surveys competing normative views as to whether, and in which form, conflict is a good or a bad thing. Building on both, it looks at institutions reducing conflict risk, or managing conflict once it breaks out. The paper concludes with asking whether (also) adopting a conflict perspective might be how the law as a field is distinct from the (other) social sciences.
Abstract: Regulation is almost a synonym for public law. Government, relying on its sovereign powers, intervenes into freedom for the sake of social betterment. Reality less and less coincides with this traditional picture. Regulation is increasingly replaced by private or hybrid governance, i.e., by blends of private and public elements. Constitutional doctrine is not well prepared for the ensuing four-polar conflict. The four actors are government, the private regulator, its addressees, and the protectees. Constitutional doctrine treats private regulation as an exercise of freedom. The interest of protectees in good governance consequently lacks constitutional status. The conflict between private regulators and addressees is treated as if it were a normal conflict between two groups of individuals having opposing interests. An appropriate solution makes a difference between the constitutional protection of freedom and autonomy. The German constitution does indeed also protect autonomy, of municipalities, public broadcasters, universities, and private regulators. But the scope and level of protection against governmental interference reflects the governance task of private regulators. In a second respect, constitutional doctrine also ought to be amended. Private governance is rarely governance by law. It more often relies on social norms, technical code, incentives, or mixtures of legal with non-legal governance tools. The normative value of governance by law can be reflected in objective constitutional law. Finally, from all this a first set of insights can be derived for the constitutional treatment of hybrid governance.
Abstract: The Constitutional Court is one of the most characteristic features of the German constitution. The most important power of the Court rests in litigable fundamental rights. According to established jurisprudence, any governmental interference with freedom or property needs justification. It must pursue a legitimate aim, and the interference must be conducive to this end, it must be the least intrusive measure, and it may not be out of proportion. Conceptually, this dogmatic tool could become the vessel for a long-standing dream of (some) political scientists. It could turn the Constitutional Court into an authority for assessing political outcomes. The paper demonstrates the many obstacles, originating both from political sciences and from law. They call for high modesty and prudence. But they do not turn the dream into outright utopia. Systems theory, very liberally employed, allows us to define a subsidiary role for the Constitutional Court in assessing political outcomes. The paper concludes by analyzing the dogmatic consequences for the interpretation of fundamental rights.
Abstract: Traditionally, there have been two separate telecommunications networks, one based on switches, the other based on routers. The switched network basically carried voice. The packet switched network basically carried data. Now voice is about to go packet switched too. Ultimately, both networks might merge. If that were to happen, the governance structure of either of these networks would have to change fundamentally. Currently, a large amount of packet switched traffic goes over the public Internet. The Internet is organised as a club good. There is an access fee, but no further fee for its actual use. Volume metering is technically feasible, but typically only bandwidth is controlled. In the switched network, a split price is standard. There is an access fee, plus a separate fee for each call. In a club good, by definition each side pays for part of the traffic. On the Internet, the receiver pays principle is thus applied. In most countries, the switched network is governed by the caller pays principle. Under that principle, there are termination charges. Each operator has a local monopoly over its customers. There is thus the possibility that telephony will in the future be controlled by the same principles. Actually, in that case the only remaining property right would be access to the network. In the opposite case, data traffic might be contaminated by the principles currently governing switched telephony. This would presuppose that operators succeed in introducing artificial property rights for the relationship with their customers, maybe even for the individual instance of communication. Technically, there are two main opportunities for this. In switched telephony, for technical reasons it is natural to give out telephone numbers to operators, not to clients. Through these numbers, they control their customers. Voice over IP operators try to implement the same scheme for packet switched voice traffic, although here the domain name system would be natural. Domains are accorded to end users, not to operators. A second conduit for artificially introducing property rights is technical standards. They are needed for defining addressees, for the management of real-time interaction, and for the digital coding of voice signals. By way of proprietary standards, the operator gains full control. Competition policy should not only see at the establishment of these fundamental governance structures. It should also check the potential for distorting systems competition between switched and packet switched telephony. Incumbents are having a host of potential strategies for creating new barriers to entry, and for distorting actual competition. Most critical are bundling strategies. Diagonally integrated incumbents might offer their clients to carry their traffic over IP where possible, and through their traditional network otherwise. That way they could turn their customer base in the traditional networks into a barrier to entry. Currently, this strategy can fully work for mobile telephony. In fixed telephony it is more difficult to implement as long as IP addressees are not earmarked.
property right, club good, network externality, monopolistic competition, systems competition
Abstract: Globalisation can mean one of four things: a considerable degree of regulatory competition; a geographically relevant market transgressing national and regional borders; the transfer of significant regulatory power to supranational entities; the public perception that nation states have lost a remarkable degree of regulatory independence. Any of these four definitions can be applied to the shifting relationship between national and European regulatory powers as well. Accordingly, the clash between Europeanisation and globalisation opens up a host of exiting theoretical hypotheses. This paper elaborates on the options, and tests them empirically in the field of telecommunications, using the new regulatory framework proposed by the European Commission as evidence. The result is sobering. Signs of Europeanisation abound, while there is hardly an unequivocal sign of globalisation. Strategic neglect seems the most plausible explanation. The paper concludes by demonstrating why this is a political, but not a legal problem.
Abstract: Lawyers routinely have to decide under considerable uncertainty. Those officially applying the law in force, like judges or public officials, often do not know all the facts of the case. And the legislator ought to know, understand and forecast much more than he usually does. Economics, psychology and systems and cultural theory address knowledge, ignorance and uncertainty, using sharp conceptual tools. This article explores how law might exploit the knowledge of its neighboring disciplines. In each case, the assessment hinges upon understanding how the concept of knowledge in question differs from the legal one. If and when the open integration of a foreign concept proves unfeasible, two ways out are still worth investigating. The authorities entrusted with rule application often enjoy more latitude when tracing and selecting cases. Moreover, the legislator can step in and tune a statutory provision such that it can better exploit the generic knowledge offered by a neighboring discipline.
Abstract: Hardly any antitrust lawyer would deny that antitrust needs solid foundations in economics. Antitrust authorities hire economists, if they do not even haven the position of a chief economist. Antitrust not only capitalises on economic theory, but it is equally sensitive to empirical studies, be it case studies or econometrics. Yet antitrust has been much less open to behavioural research, although quite some antitrust issues are reflected in a rich body of experimental evidence.
This paper mainly serves a methodological purpose. Relying on a meta-study of oligopoly experiments published elsewhere, it demonstrates in which way experimental evidence can productively be introduced into the antitrust discourse. To that end, it presents main effects, interaction effects, effect sizes and multivariate statistics, and discusses pertinent doctrinal reflection points. The paper concludes by showing how a new experiment, triggered by a doctrinal issue, can be used to inform the antitrust authorities.
Antitrust, Behavioural Law and Economics, Oligopoly, Coordinated Effects, Tacit Collusion, Merger Guidelines
Abstract: A technology often reaches perfection when its successor is already in place. Miraculously speedy and reliable punch card readers were finally available on the market when demand shifted to personal computers, to cite only one example. Do constitutions follow the same evolutionary pattern? Constitutional law, in general, and the doctrine of fundamental freedoms, in particular, are in admirable shape. Their dogmatics have been amply tested; they are elegant and rich. But they have been developed for the nation state. Yet governance reality is increasingly different. The state is competing with foreign, international and private governing authorities, or it is joining them in hybrid efforts. Will de-constitutionalization ensue? Or will the existing constitutions be able to face, or even alter, the new reality? This is a paper about governance. Hardly a term is more disputed in the social sciences. This paper looks at (potentially) global, not national or European governance. It therefore cannot avoid using looks at (potentially) global, not national or European governance. It therefore cannot avoid using the broadest of all possible definitions of governance. Since on the global scale there is no such thing as a widely undisputed higher order system, the term governance must comprise all modes of social ordering, by whatever actor or actor configuration. The focus of this paper is on divergent governance bodies, not governance tools. It does not want to explore whether the pertinent body uses (quasi-)legal rules, incentives, moral suasion or any other tool for governing the behavior of its addressees. It simply looks at who purports to change the behavior of a class of addressees, in the alleged interest of some protectees. Moreover, when it speaks of governance, the paper exclusively looks at intentional attempts to change the behavior of addressees. The limitation inherent in this becomes clear when looking at a constitutional court. To the extent that it has jurisdiction one can interpret such a court as the supreme legal authority. At the limit, the court can even overrule the legislator. But, strictly exceptional instances notwithstanding, a constitutional court does not itself write the law. It at most invalidates existing rules, or gives them a different meaning. In both cases, parliament remains the governing body. Finally, this is an interdisciplinary paper in that it draws on insights from the social sciences, and from political sciences in particular. But it does so exclusively in the interest of better understanding a dogmatic problem of constitutional law: how can and how should a national constitution react when governance activities cannot (exclusively) be attributed to the governance bodies created by the constitution? More specifically even, the paper does not intend to design the appropriate reaction for a concrete instance of not exclusively public national governance. Its goal is much more modest. It wants to provide constitutional lawyers with a conceptual framework for addressing such concrete design problems. This explains why the paper does by far not exploit the richness of the discussion on hybrid international governance in the political sciences. The following sketch purports to address these questions from the angle of the German constitution. It starts with a taxonomy of governance authorities (II). It briefly summarizes the normative arguments for and against international, private and hybrid governance (III). It points to the option of privatizing, internationalizing and hybridizing the constitution itself (IV), but focuses on strategies for the existing national constitutions in the face of an altered reality (V). The concluding dogmatic treatment is confined to fundamental freedoms. It starts by isolating the international (VI) and the private dimension (VII), then goes on to address the more complex private international (VIII) and hybrid forms of governance (IX).
Abstract: A technology often reaches perfection when its successor is already in place. Miraculously speedy and reliable punch card readers were finally available on the market when demand shifted to personal computers, to cite only one example. Do constitutions follow the same evolutionary pattern? Constitutional law, in general, and the doctrine of fundamental freedoms, in particular, are in admirable shape. Their dogmatics have been amply tested; they are elegant and rich. But they have been developed for the nation state. Yet governance reality is increasingly different. The state is competing with foreign, international and private governing authorities, or it is joining them in hybrid efforts. Will de-constitutionalization ensue? Or will the existing constitutions be able to face, or even alter, the new reality? This is a paper about governance. Hardly a term is more disputed in the social sciences. This paper looks at (potentially) global, not national or European governance. It therefore cannot avoid using the broadest of all possible definitions of governance. Since on the global scale there is no such thing as a widely undisputed higher order system, the term governance must comprise all modes of social ordering, by whatever actor or actor configuration. The focus of this paper is on divergent governance bodies, not governance tools. It does not want to explore whether the pertinent body uses (quasi-)legal rules, incentives, moral suasion or any other tool for governing the behavior of its addressees. It simply looks at who purports to change the behavior of a class of addressees, in the alleged interest of some protectees. Moreover, when it speaks of governance, the paper exclusively looks at intentional attempts to change the behavior of addressees. The limitation inherent in this becomes clear when looking at a constitutional court. To the extent that it has jurisdiction, one can interpret such a court as the supreme legal authority. At the limit, the court can even overrule the legislator. But, strictly exceptional instances notwithstanding, a constitutional court does not itself write the law. It, at most, invalidates existing rules, or gives them a different meaning. In both cases, parliament remains the governing body. Finally, this is an interdisciplinary paper in that it draws on insights from the social sciences, and from political sciences in particular. But it does so exclusively in the interest of better understanding a dogmatic problem of constitutional law: how can and how should a national constitution react when governance activities cannot (exclusively) be attributed to the governance bodies created by the constitution? More specifically even, the paper does not intend to design the appropriate reaction for a concrete instance of not exclusively public national governance. Its goal is much more modest. It wants to provide constitutional lawyers with a conceptual framework for addressing such concrete design problems. This explains why the paper does, by far, not exploit the richness of the discussion on hybrid international governance in the political sciences. The following sketch purports to address these questions from the angle of the German constitution. It starts with a taxonomy of governance authorities (II). It briefly summarizes the normative arguments for and against international, private and hybrid governance (III). It points to the option of privatizing, internationalizing and hybridizing the constitution itself (IV), but focuses on strategies for the existing national constitutions in the face of an altered reality (V). The concluding dogmatic treatment is confined to fundamental freedoms. It starts by isolating the international (VI) and the private dimension (VII), then goes on to address the more complex private international (VIII) and hybrid forms of governance (IX).
Abstract: Should government be allowed to spend tax payers' money on public relations? If one frames the question that way, the negative answer suggests itself. Yet government communication serves more purposes. These purposes may be analysed in terms of behavioural economics and psychology. In moral suasion, government communication is the governance tool itself. Most other governance tools do not automatically reach their addressees. Appropriate communication is necessary for them to become effective. Finally, government is a legitimate player in political process, and communication to the public is a legitimate element of this process. Specifically, the normatively desirable and the normative problematic aspects can usually not be fully disentangled. Hence, the potential distortion of elections must be outweighed against the governance effect. This paper does so by interpreting governmental public relations as a bundled product. It models the people as the principal, and the political parties running government as the agent. The distortion effect is observable, the governance effect is not. This set-up of the model invites a second-best solution in terms of mechanism design. Government is free to advertise. But advertising is costly in that it generates a handicap at the next elections. This solution is taken as a benchmark for discussing politically more digestible third and fourth best.
Governmental Public Relations; Governmental Communication, Mechanism Design, Constitutional Law
Abstract: Both in the US and in Europe, antitrust authorities prohibit merger not only if the merged entity, in and of itself, is no longer sufficiently controlled by competition. The authorities also intervene if, post merger, the market structure has changed such that tacit collusion becomes disturbingly more likely. It seems that antitrust neglects the fact that, for more than 50 years, economists have been doing experiments on this very question. Almost any conceivable determinant of higher or lower collusion has been tested. This paper standardises the evidence by way of a meta-study, and relates experimental findings as closely as possible to antitrust doctrine.
Oligopoly, Coordinated Effects, Tacit Collusion, Merger Guidelines, Airtours, Experimental Markets
Abstract: The Internet globalizes the world. National regulatory autonomy shrinks. Transferring data from one country to another is almost costless. Foreign content is just a click away. Why is it that states have been able to re-install co-existence in some policy areas, and not in others? In data protection, the safe-harbour compromise between the US and the EU found a way out. In the area of content regulation, transnational conflict is no less pronounced. The Europeans are preoccupied with Nazi publications, that are constitutionally protected in the US. The US public dislikes portrayals of nudity, that most Europeans find inoffensive. Yet no attempts at organizing co-existence are within sight. This paper develops a rational choice model to explain the difference. States are modelled as actors. The good is the degree of protection accorded to a value. Nations evaluate such protection differently. Moreover, rational nations are aware of the opportunity cost involved in any activity to protect local values. To a degree, the inability of organizing co-existence stems from a difference in preferences. If so, there is no room for a win-win solution. But typically, one nation does not positively want some content to be accessible that the other nation dislikes fervently. Usually, the first nation is just indifferent, or the opportunity cost seems too high. The more important difference between data protection and content regulation thus turns out to be strategic. Organizing co-existence in both areas presupposes overcoming a strategic conflict. But in data protection, this typically is a one-to-one conflict, while in content regulation the typical conflict is of a one-to-many nature. In public goods terminology, co-existence is a weaker-link good with a very high threshold. This difference might make it advisable for countries with a strong preference for protection to shift from mitigation to adaptation. Practically speaking, they would push, perhaps even subsidize, the development of powerful filtering technologies. And they would strengthen their social norms ostracizing access to outrageous content.
Internet regulation, cyberlaw, data protection, content regulation, Nazi speech, pornography, public goods, international conflict
Abstract: Hardly any of the law's subjects know the text of the provisions that govern their conduct. Even less would they be able to handle this text properly, were they to get access to it. Nonetheless the law firmly believes that it is not feckless. This paper solves the puzzle by drawing on four bodies of knowledge: neurobiology, developmental psychology, the psychology of learning, and work from social scientists on learning. The paper makes the following claim: typically the law reaches its addressees indirectly. The law is not followed, it is learned. There are two distinct learning objects. Throughout childhood and adolescence individuals acquire normative proficiency, i.e. the ability to properly handle normative expectations originating in the law. This procedural knowledge is gradually filled with the declarative knowledge of individual normative expectations. Typically, compared to their professional legal origin, they reach adolescents in much more contextualised form. They take the form of schema-like social mirror rules, or of exemplars. Learning also is the key to understanding how individuals cope with changing normative expectations. There are two situations for this: upon legal reform the law changes. Or the individual moves to a different context, and has to learn the legal expectations prevalent there. From a governance perspective, such secondary learning of the law is more risk-prone. Individuals may overlook the change. The new normative expectations may force them to engage in unlearning. The critical phase in brain development may be past, making fundamental changes hard to bring about.
learning, governance by law, command and control regulation, legal reform, regime transition
Abstract: The standard tool for analysing social dilemmas is game theory. They are reconstructed as prisoner dilemma games. This is helpful for understanding the incentive structure. Yet this analysis is based on the classic homo oeconomicus assumptions. In many real world dilemma situations, these assumptions are misleading. A case in point is the contribution of households to climate change. Decisions about using cars instead of public transport, or about extensive air conditioning, are typically not based on ad hoc calculation. Rather, individuals rely on situational heuristics for the purpose. This paper does two things: it offers a model of heuristics, in the interest of making behaviour that is guided by heuristics comparable to behaviour based on rational reasoning. Based on this model, the paper determines the implications for the definition of social dilemmas. In some contexts, the social dilemma vanishes. In other contexts, it must be understood, and hence solved, in substantially different ways.
Heuristic, Social Dilemma, Public Good, Prisoner's Dilemma
Abstract: The European Community is about to enlarge its de facto constitution by a fundamental rights charter. It is intended to become legally binding, at least in the long run. If it is, it will profoundly change the political opportunity structure between the Community and its Member States, among the Member States, among the organs of the Community and in relation to outside political actors. When assessing the new opportunities, one has to keep in mind the weak democratic legitimation of European policy making and its multi-level character. The article sketches the foreseeable effects and draws consequences from these insights for the dogmatics of the new fundamental rights, their relation to (other) primary Community law and to other fundamental rights codes. It ends with a view to open flanks that cannot be closed by the dogmatics of the freedoms themselves, but call for an appropriate design of the institutional framework.
Abstract: Policymakers all over the world claim: no innovation without protection. For more than a century, critics have objected that the case for intellectual property is far from clear. This paper uses a game theoretic model to organise the debate. It is possible to model innovation as a prisoner's dilemma between potential innovators, and to interpret intellectual property as a tool for making cooperation the equilibrium. However, this model rests on assumptions about cost and benefit that are unlikely to hold, or have even been shown to be wrong, in many empirically relevant situations. Moreover, even if the problem is indeed a prisoner's dilemma, in many situations intellectual property is an inappropriate cure. It sets incentives to race to be the first, or the last, to innovate, as the case may be. In equilibrium, the firms would have to randomise between investment and non-investment, which is unlikely to work out in practice. Frequently, firms would have to invent cooperatively, which proves difficult in larger industries.
intellectual property, game theory
Abstract: Doesn't work. Has failed. Apolitical. Naive. Pre-modern. Non-scientific. Such hardly ornamental epithets get pinned on anybody who still sets out to define the common good today. Ideas and interests cannot be translated into one another without fracture. There is no abstract basic norm from which all normative decisions could be deduced. But neither the individual, nor society and the state can forego a definition of the common good. The ostensive a priori dissolves when a closed definition of the common good is exchanged for an open one. A definition of the common good cannot claim validity once and for all, but always just for one time. Such openness is able to be created with numerous decision-making techniques. The co-existence of incommensurable ideas can be organized through differentiation. Institutions can keep the struggle between conflicting ideas open over the long run. Or decisions and reasons break up. It is easier if the conflict is only settled for the concrete circumstance to be decided upon. Sometimes there is even agreement in the concrete case about the reasons on which a decision is based; more often in any case there is agreement about the decision itself. The plasticity of the definition of the problem can also be used. The need for a decision for which no reasons can be given does not completely disappear with any of these techniques. However, it does diminish. And if it does come to such a decision, that decision is more controlled.
Abstract: Behavioural law and economics is a growing industry. In its neighbourhood, old contacts between lawyers and psychologists are revitalised, and redirected to understanding and designing the law as a governance tool. This is promising work. But lawyers fascinated by behavioural analysis are frequently unaware of the potential pitfalls and caveats. Experimental data do not necessarily respond to legally relevant questions. Often data is missing where it would be most urgent from a legal perspective. Unfortunately, many behavioural phenomena are undertheorised, so that the missing data may not easily be replaced by hypotheses based on general principles. Moreover, the doctrinal interfaces to behavioural analysis must be properly designed, as should be done with the normative theory justifying legal responses to behavioural findings.
behavioural law and economics, psychology and the law
Abstract: Anti-trust cases more often than not hinge upon market definition. The anti-trust authorities use standardised tests for the purpose, like the small but significant and nontransitory increase in price test prevalent in US law. These tests are often read as neoclassical economics, watered down to legal scale. They then are interpreted by economic concepts like cross price elasticities. These interpretations rest on methodological individualism. Social phenomena, like competition, are explained from the perspective of actors maximising their individual utility. If one wants to understand how an individual firm is controlled by competition, this is a most helpful approach. But for defining the effective area of competition, or the relevant market, methodological holism is more powerful. Its basic conceptual unit is not the individual, but communication. Markets are seen as implicitly or explicitly organised entities, giving an industry an identity, and helping the consumers orient themselves in a complex environment. Specifically, a market turns out to be a hybrid between co-operation (for constituting the area of competition) and conflict (within the area thus defined). This alternative approach is important for anti-trust practice. The decisive fact is not whether two products objectively ought to be substitutes. What market participants see as substitutes is the only thing that matters. Consequently, for market definition, anti-trust authorities may not (only) rely on their own wisdom. They must find ways to reconstruct the communication among market participants.
Market Definition, Constructivism
Abstract: Oligopoly has been among the first topics in the experimental economics. Over half a century, some 150 papers have been published. Each individual paper was interested in demonstrating one effect. But in order to do so, experimenters had to specify many more parameters. That way they have generated a huge body of evidence, untapped thus far. This meta-analysis makes this evidence available. More than 100 of the papers lend themselves to calculating an index of collusion. The data bank behind this paper covers some 500 different settings. The experimental results may be normalised as a percentage of the span between the Walrasian and the Pareto outcomes. The same way, results may be expressed as a percentage of the distance between the Nash and the Pareto outcomes. For each and every of the parameters, these two indices make it possible to answer two questions: how far is the market outcome away from the competitive equilibrium? And how good is the Nash prediction? Most importantly, however, the meta-analysis sheds light on how features of the experimental setting interact with each other. Most main effects and many interaction effects are indeed statistically significant.
oligopoly, collusion, unilateral effect, experiment
Abstract: The human mind is not a general problem solving machine. Instead of deliberately, consciously and serially processing the available information, men can rely on routines, rules, roles or affect for the purpose. They can bring in technology, experts or groups. For all of these reasons, men have a plurality of problem solving modes at their disposition. Often, the meta-choice of problem solving mode matters for behavioural output. Some performance standards are only to be met if a certain problem solving mode is used, like a well-established skill. Other requirements are easier to fulfill with some problem solving modes. This explains why institutions frequently impact on the choice of problem solving mode. To show how institutions are able to do that, a model of problem solving modes is developed. It allows to systematise the access points for institutional intervention.
Decision Making, Problem Solving, Institutions
Abstract: The German constitution stands out for the exceptionally powerful position of the Constitutional Court. Any governmental intervention into freedom, and any unequal treatment, are constitutional issues. And any inhabitant can attack any administrative act, and any piece of legislation, in the Constitutional Court. The basic test is proportionality. Given the legislators', or the administrators', end the interference must be conducive, least intrusive, and not out of proportion. All three tests are relative. How powerful they are depends on the definition of the governmental aim. Unlike constitutional jurisprudence, doctrine is hesitant to say which governmental aims are constitutionally legitimate. The paper does two things: it reconstructs dogmatic principles for the definition of governmental aims from the jurisprudence, and it demonstrates how the quality of these definitions can be improved by relying on concepts from the social sciences, like the economic theory of market failure. Sceptics raise three concerns: there is no universally agreed philosophical starting point from which the legitimacy of governmental aims could deductively be derived; the Constitutional Court is ill prepared for engaging in the application of theories from the social sciences; strict dogmatic principles for the definition of legitimate aims siphon power away from the democratically elected legislator. The paper rebuts all three concerns.
Constitutional court, proportionality, market failure
Abstract: The title of this chapter is deliberately provocative. Intuitively, many will be inclined to see conscious control of mental process as a good thing. Yet control comes at a high price. The consciously not directly controlled, automatic, parallel processing of information is not only much faster, it also handles much more information, and it does so in a qualitatively different manner. This different mental machinery is not adequate for all tasks. The human ability to consciously deliberate has evolved for good reason. But on many more tasks than one might think at first sight, intuitive decision-making, or at least an intuitive component in a more complex mental process, does indeed improve performance. This chapter presents the issue, offers concepts to understand it, discusses the effects in terms of problem solving capacity, contrasts norms for saying when this is a good thing, and points to scientific and real world audiences for this work.
Abstract: It is a commonplace that we live in an era of increasing international interdependence, in which there has been a proliferation of international law and international organizations. Yet our understanding of the workings of international law has not kept pace. While we have a good deal of work on international law doctrine, our analytic tools are much weaker, and we are far from anything approaching a science of institutional design. We are therefore ill prepared to advise policy makers in the project of developing effective tools to solve transna-tional problems, and to provide global public goods. The contributions to this special issue, though they involve a wide range of different approaches and topics, share a commitment to using the core methodological assumptions of the rational choice approach in seeking to answer important question in International Law. The papers published in this issue were first presented at a conference at the Max-Planck Institute for Research on Collective Goods in Bonn, Germany in December 2006. In putting together the conference, we had two aims, one interdisciplinary and one intercultural. We wanted to contribute to the nascent law and economics of public international law. We noticed, however, that the use of the rational choice approach to international law has been largely confined to the United States, creating a methodological gap between European and American international law scholarship. We sought to generate a trans-Atlantic discussion not only about the substantive papers but on the appropriateness of the rational choice approach to international law.
Abstract: Mutual disdain is an effective border patrol at the demarcation lines between disciplines. Social scientists tend to react with disdain when they observe how their findings are routinely stripped of all the caveats, assumptions and careful limitations once they travel into law. Likewise, lawyers tend to react with disdain when they read all the laborious proofs and checks for what looks to them like a minuscule detail in a much larger picture. But mutual disdain comes at a high price. All cross-border intellectual trade is stifled. This paper explores the social science/law border from the legal side. The natural barriers turn out to be significant, but not insurmountable. Specifically the paper looks at the challenges of integrating rigorous descriptive social science into the application of the law in force by courts and administrative authorities. This is where the gap is most difficult to bridge. The main impediments are implicit value judgments inherent in models, conceptual languages and strictly controlled ways of generating empirical evidence; the difference between explanation, hypothesis testing and prediction, on the one hand, and decision-making, on the other; the ensuing difference between theoretical and practical reasoning, and the judicial tradition of engaging in holistic thinking; last but not least, the strife of the legal system for autonomy, in order to maintain its viability. If a legal academic assumes the position of an outside observer, she may entirely ignore all these concerns and simply follow the methodological standards of descriptive social science. This is, for instance, what most of law and economics does. The legal academic may, instead, choose to contribute to the making of new law. She will then find it advisable to partly ignore the strictures of rigorous methodology in order to be open to more aspects of the regulatory issue. But it is not difficult, at least, to follow the standards of the social sciences for analysing the core problem. The integration is most difficult if an academic does doctrinal work. But it is precisely here where the division of intellectual labour between legal practice and legal academia is most important. Academics who themselves are versatile in the respective social science translate the decisive insights into suggestions for a better reading of statutory provisions or case law.
law and economics, law and statistics, explanation vs. decision-making, practical reasoning, psychology of judicial decision-making
Abstract: Unlike its US counterpart, the German Constitution offers all-encompassing protection; in American jargon German law thus is in the Lochner era. But this generosity only applies to individual freedom, not to private governance. There are select guarantees of governance too, as for the churches and the universities. But according to general wisdom, these guarantees are enumerative. This paper challenges the general wisdom. It claims two things: there is a general protection of private governance, enshrined in Basic Law, Article 9. And a constitutional guarantee of governance is fundamentally different from the guarantees of freedom. Both classes of guarantees have in common that they protect against governmental intervention. Consequently, they also share the basic doctrinal properties: to violate the protection, the governmental act must intervene in an activity protected by the constitutional provision, and the intervention must fail the test of proportionality. But governance is protected as an activity. Government intervenes if private governance is prevented or impeded. Such intervention can be indirect, and therefore encompass internal organisation of the private governance body, or its access to resources. Yet neither the body's property nor its potential for making money are protected directly by the pertinent constitutional freedoms. Moreover, the proportionality principle has to be applied in a way that pays due respect to the fact that private governance by definition encroaches upon the individual freedom of its addressees.
private governance, regulatory autonomy, basic rights, constitutional protection
Abstract: Institutions are governance tools. They are useful only if they impact on behaviour: of citizens, and of those administering the legal system. Models of behaviour are therefore crucial for institutional analysis and design. In light of this, this paper draws lessons for institutional analysis and design resulting from the models of multi-attribute decision-making assembled in this special issue. That way, it contributes to assessing the external validity of these models with respect to one well-defined, and practically highly relevant, domain.
multi-attribute decision-making, recognition heuristic, parallel constraint satisfaction, sequential evidence accumulation, exemplars, external validity of behavioural models, standard of proof, jury decision-making, story telling model
Abstract: Nobody would claim that regulators, or academics working on regulatory policy, have neglected the Internet. But most of this work is attracted by the global character of the Internet. Admittedly this is a serious challenge to regulation. But it is not the only, and probably not even the most disquieting challenge. One of the largely overlooked challenges to governance is cultural. The Internet originated in the egalitarian culture of American university computer labs. Its architecture has been shaped at the period. Up until now many key functions for Internet management are held by people coming from that culture. This paper basically makes three points: the egalitarian challenge to Internet governance has been largely overlooked. The challenge is serious, but not unmanageable. Yet regulators must use appropriate concepts to understand the challenge. A subfield of sociology, cultural theory, is particularly instrumental for that purpose. In order to address the challenge, regulators must use a set of governance tools that deviates considerably from standard regulatory responses. Governance can only be probabilistic, not deterministic. It must take into account that egalitarian movements are characterised by strong social embeddedness. It must address the cognitive and the belief side simultaneously. It must be aware of autopoiesis. It eventually must aim at restoring cultural balance.
Internet governance, cultural theory, systems theory, egalitarianism, probabilistic governance, cognitive governance, contextual governance
Abstract: A cartel is socially not desirable. But is it a normative problem? And has merger control reason to be concerned about tacit collusion? Neither is evident once one has seen that the members of a cartel face a problem of strategic interaction. It is routinely analysed in terms of game theory. Much less frequently, however, an obvious parallel is drawn. For cartel members, the formation of the cartel and cartel discipline are a public good. Making the parallel explicit is elucidating both at the theoretical and at the experimental levels. The paper contrasts oligopoly theory with public goods theory, and oligopoly experiments with public goods experiments.
Oligopoly, Public Good, Experiment
Abstract: Much of behavioural research, both in economics and in psychology, is limited in one respect: it tests isolated individuals. In many practically relevant situations, there are discernible actors, but these actors are not individuals. Rather firms, regulatory bodies, associations, countries or international organisations become active. The social problem at hand is best understood if one attributes judgement and decision making to higher level aggregates of individuals. Which elements from the rich body of behavioural evidence transfer to these corporate actors? Are there other deviations from the predictions of the rational choice model, not present or studied in individuals? This paper surveys the empirical literature from experimental economics, psychology, sociology and law. While some building blocks, like the behaviour of managers and of ad hoc groups, are relatively well understood, our knowledge about the effects of more elaborate internal structure on the dealings of corporate actors with the outer world is still relatively limited.
Behaviour, Firms, Organizations, Associations, Groups
Abstract: By its critics, the rational choice model is routinely accused of being unrealistic. One key objection has it that, for all nontrivial problems, calculating the best response is cognitively way too taxing, given the severe cognitive limitations of the human mind. If one confines the analysis to consciously controlled decision-making, this criticism is certainly warranted. But it ignores a second mental apparatus. Unlike conscious deliberation, this apparatus does not work serially but in parallel. It handles huge amounts of information in almost no time. It only is not consciously accessible. Only the end result is propelled back to consciousness as an intuition. It is too early to decide whether the rational choice model is ultimately even descriptively correct. But at any rate institutional analysts and institutional designers are well advised to take this powerful mechanisms seriously. In appropriate contexts, institutions should see to it that decision-makers trust their intuitions. This frequently creates a dilemma. For better performance is often not the only goal pursued by institutional intervention. Accountability, predictability and regulability are also desired. Sometimes, clever interventions are able to get them both. Arguably, the obligation to write an explicit set of reasons for a court decision is a case in point. The judge is not obliged to report the mental processes by which she has taken her decision. Justification is only ex post control. Intuitive decision-making is even more desirable if the underlying social problem is excessively complex (NP hard, to be specific), or ill-defined. Sometimes, it is enough for society to give room for intuitive decision-making. For instance, in simple social dilemmas, a combination of cheater detection and punishing sentiments does the trick. However, intuition can be misled. For instance, punishing sentiments are triggered by a hurt sense of fairness. Now in more complex social dilemmas, there are competing fairness norms, and people intuitively choose with a self-serving bias. In such contexts, institutions must step in so that clashing intuitions do not lead to social unrest.
intuition, consciousness, rational choice, heuristics, ill-defined social problems, institutions
Abstract: In the US, law and economics is so well established that many law schools have given up on a separate law and economics course. It seems obvious that economic theory matters for the interpretation and the evolution of the law. More recently, the empirical law movement has been gaining momentum which, in its majority, is an application of econometrics to legal issues. Compared to its American counterpart, German legal scholarship looks very different. Ernst-Joachim Mestmäcker has been one of the first German law professors to argue in economic terms, and he has always contrasted German with US law. Yet even this pioneer of a transnational perspective on German law cautions against the dangers of taking economics too seriously. He insists on the law being a tool for governing life, which excludes overly stringent methodology. In economic argument he misses freedom as a normative category that does not collapse with efficiency. He believes that evolutionary economics is much better suited to help the law than neoclassical models. And he is very critical of Richard Posner's work, which he dubs; A Legal Theory without Law.
law and economics, law and philosophy
Abstract: The law is not a bunch of scattered rules, it is a body. This simple statement suffices to demonstrate that consistency is crucial for the law. Esteemed philosophers radicalise the statement: If it stops being consistent, to them the law is no longer the law. Consequently, consistency must be an absolute value, not to be traded against whatever competing normative concern. This paper adopts the opposite, consequentialist position. It takes consistency as a value, but one that bears balancing according to the principle of proportionality. In order to rationalise this balancing exercise, the paper does two things. It offers a taxonomy of consistency objects, and of ensuing definitions of consistency. Rules, authoritative statements of fact, output and outcome are taken up in turn. Definitions rely on mathematical set theory, and on basic concepts from statistics, like variance and skewedness. Secondly, the paper opposes the normative values in favour of legal consistency, and the concerns that might justify occasional deviations from this normative goal. It sketches the complementary implications of design for consistency and design for (some) inconsistency.
Consistency vs. Inconsistency, Deontological vs. Consequentialist Concept of Law, Set Theory, Statistical Concepts
Abstract: Jury members do not normally have the privilege of a complete, unbiased picture of the case. To make the best of patently incomplete evidence, they cannot but at least partially rely on their intuition. We provide evidence for this claim based on self-report data as well as more subtle measures of unconscious modifications of the evidence in order to fit the favoured interpretation (coherence shifts). In three experiments we investigated whether members of a mock jury apply standards of proof in a normatively appropriate way, how well they take into account explicitly stated probability information, and which factors influence the size of coherence shifts. We found a mixed pattern of results: manipulation of the standard of proof influences conviction rates in the intended direction, but there are fewer convictions in both standard of proof conditions than normatively expected. When asked to indicate the minimum probability of guilt necessary for conviction, subjects do not sufficiently discriminate between "beyond a reasonable doubt" and "preponderance of the evidence". Even substantial manipulations of the posterior probability of guilt had very little effect on conviction rates. Reliance on intuitive processes seems to reduce the influence of explicitly stated probabilities. We furthermore found effects of verdict and of the probability manipulation on the size of coherence shifts. We argue that the performance of jury members could be improved by providing them with supplementary information on context, such that they are able to put explicit information on probabilities in perspective.
Abstract: In the official rhetoric of industrialised countries, for developing countries the conclusion of a bilateral investment treaty is a win-win solution. Empirical work has cast doubt on this. Do developing countries only agree since, otherwise, all the capital is siphoned off to other developing countries who have given in to Western pressure? In game theoretic terms, this holds if developing countries, among themselves, face a prisoner's dilemma. Whether this is true depends on the distribution of payoffs. Those who decide on the conclusion of a treaty derive utility from the expected effect of foreign direct investment on political support within their respective countries. On plausible assumptions, the actors governing developing countries play a chicken game. In pure strategies, or if one country can go first, only the first country concludes a treaty, whereas the second mover abstains. This equilibrium is particularly likely if governments of developing countries do not hold symmetric preferences.
bilateral investment treaties, prisoner's dilemma, chicken game, sequential game
Abstract: Corporate actors differ from individuals in one important respect: technically, it may be possible to observe the formation of the corporate will from outside, and to impact on its formation. This feature can be exploited by regulators. One technology is inducing corporate actors to hire an interface actor, representing the regulatory cause at the interior of the firm. Regulators are corporate actors as well. Statutes usually do not fully determine their behaviour. Therefore, firms may induce the regulator to give an interface actor access to the regulatory arena. This interface actor has the task of representing the commercial cause in regulatory decision-making. The paper uses a principal-agent-supervisor model to analyse each of these cases separately, and to demonstrate how the reciprocal nature of the relationship may be exploited.
principal-agent-supervisor, corporate actor, corporate governance, regulatory procedure, governance, interface actor
Abstract: The German Basic Law is open for an interpretation that would allow the Constitutional Court to test the normative adequacy of most statutes. If the court does, it could be modelled as the supervisor of the legislator, i.e., of the agent of the people. The model predicts collusion between the supervisor and the agent, or too little control. Actually, constitutional lawyers are concerned by the opposite, too much control. The article purports to solve the puzzle, and to put the principal-agent model into a broader framework needed for normative recommendations.
Abstract: From the angle of competition policy, Voice over IP looks like a panacea. It not only brings better service, but it also increases competitive pressure on former telecommunications monopolists. This paper points to the largely overlooked downside. In a pure world of Internet telephony, there would be no charge for individual calls, nor for telephony, as distinct from other services running over the uniform network. Specifically, establishing property rights for either of these would be costly, whereas these property rights were automatic and free of charge in switched telephony. Giving voice over IP providers classic telephone numbers would enhance systems competition with switched telephony. But this would make it more difficult for clients to swap providers. The anti-competitive caller pays principle would extend to IP telephony.
property right, non-linear pricing, pure bundling, club good, cross-subsidisation, packet switched telephony
Abstract: Triggered by the concentration process in the electricity and gas markets, the land of Hesse proposes to give the German cartel office power to divest dominant firms or oligopolies if this is necessary to restore competition. The paper shows that the reform would be in line with constitutional law, and with freedom of property in particular. Depending on how divestiture is brought about, it would interfere with this basic freedom. It would however not amount to taking. In practice, the main effect would be through bargaining between the divested company and the cartel office. This poses problems under rule of law, but these problems are not insurmountable. The main justification for the reform is the almost total failure of interventions to combat the abuse of dominant positions. In the US, divestiture has not always been successful. But close scrutiny of the American experiences demonstrates that the tool is sufficiently effective to meet the constitutional standard. If divestiture is brought about by forcing the firm to sell entities or assets, the necessary compensation comes from the price it receives from the buyer.
divestiture, freedom of property
Abstract: Most apparent differences between US and continental law lose their relevance once one looks beneath the doctrinal surface and checks how doctrine plays itself out in concrete cases. One of the few exceptions is standards of proof. Not only distinguishes US law between preponderance of the evidence and beyond a reasonable doubt. It even constructs proof differently. In the US, proof is an objective, science-like affair. On the continent, proof is holistic and subjective. The decision maker is called upon to form a personal conviction, and to take on personal responsibility for her assessment of the facts. What seems utterly mystic actually has a sound scientific base. Continental law capitalises on the power of intuition. Intuition relies on unconscious mental machinery. This apparatus processes huge amounts of information in almost no time. It is programmed to come up with an assessment even if the evidence is patently incomplete. It does so by multiple feedback loops. At the end of this procedure, evidence conflicting with the final decision is devalued, whereas evidence supporting the decision is given greater weight. While instrumental in making most of the available evidence, the mental mechanism is not error proof. One particularly troublesome implication precisely concerns standards of proof. Given the mechanism is designed to force a decision, one might be afraid that it mutes the difference between standards of proof. A more stringent standard would be neutralised by an even stronger devaluation of conflicting evidence. Happily an experiment shows that the concern is misplaced. A plausible explanation is this: the standard of proof instruction tags convicting an innocent defendant by a somatic marker. If this hypothesis could be proven true, the presumption of innocence would have been rescued by an emotion.
standard of proof, law of evidence, comparative law, storytelling model, unconscious decision-making, consistency maximisation, coherence shift, somatic marker
Abstract: Judges are obliged to give reasons for their decisions. A set of formal and informal norms specifies how this is to be done. These norms serve a whole array of purposes. This paper shows that one substantial effect is on decision quality. The effect can even be demonstrated on an ad hoc basis. Representation norms and the actual representation activity that is brought about by them have both a cognitive and a motivational effect. They palpably hold the judge accountable for the decision taken. And they guide him through the judgment elements inherent in his task. There is interplay between both effects when it comes to combating occasional non-normative motivation, debiasing and the choice of an appropriate decision mode. More importantly even than this short-term effect is the long-term power of representation norms. They exert this power as part and parcel of a richer institutional arrangement. That arrangement reminds the judge of the professional role he is playing, and it contributes to strengthening this attitude. And the institutional arrangement helps the judge in the process of progressive expertisation. Expertisation is no absolute protection against quality defects, but it is likely to significantly improve the quality of decisions. Suggestions for the deregulation of representation norms should pay due respect to the beneficial effect these norms have on the quality of decisions.
Judicial Decisions, Representation Norms, Accountability, Biases, Decision Modes, Expertisation
Abstract: Eventually, all law is about sovereign intervention. But public law is distinct from private law in that intervention is not only subsidiary. And it is distinct from criminal law in that intervention is undertaken with the intention to govern. This explains that taming sovereign powers features prominently in public law theory. In the second half of the 19th century, the founding father of German administrative law, Otto Mayer, has developed the control of sovereignty to perfection. In his system, administrative law is all about form. Purpose is legally irrelevant. The dynastic sovereign of his days was free to choose whatever purposes he deemed fit, provided he strictly respected legal form, and provided he got parliamentary approval whenever he intruded into freedom or property. In the meantime, all the preconditions for this definition of the discipline have disappeared. In Germany, Parliament is no longer the natural opponent of government. The constitution has reacted by material provisions that bind the legislator. The key topic of administrative law is purpose, not form. Administrative reality largely escapes legal formality. The legislator strives for social betterment, very broadly speaking, not just for providing citizens with an institutional framework for their dealings. Against this backdrop, the distinction between form and substance may no longer serve as the borderline between (administrative) law and the social sciences. This article offers an alternative demarcation. As in Otto Mayer's days, all law still is about the exercise of sovereign powers. But it also is about good governance. Both elements must be combined. Due to the first element, administrative law treats the second element in a way that differs from the approach in the social sciences. Specifically, administrative law is unable to precisely define the situation before it starts arguing about social betterment. It must permanently remain open to the unlikely features of the individual case.
Law and Social Sciences, Administrative Law
Abstract: Doctrine is a protective tool. It shields individual lawyers from political vulnerability. They are only executing the legislator's will, or they are embedded in the legal system when relying on precedents. All lawyers know that there is an element of fiction in this narrative. Doctrine usually leaves significant room for decision making. The borderline between applying the existing and making new law is never a clear one. And not all lawyers do doctrinal work. Others openly contribute to legal reform. This paper claims that professional lawyers do indeed have a proper role in designing new law. They can help making this a more rational endeavour. Yet there is a long list of caveats to this statement: complexity and uncertainty, epistemic limitations, the autonomy of addressees and their social embeddedness, fundamental normative relativity and the autonomy of law as an institution: all of these have to be taken into account. They make the advice of legal experts more demanding and less reliable. Yet there are ways to maintain a role for expert advice, sketched in the conclusions of the paper.
Lawyers advising policy-makers, complexity, uncertainty, epistemic limitations, autonomy of addressees, social embeddedness, fundamental normative relativity, rule generation vs. rule application
Abstract: Cartels are inherently instable. Each cartelist is best off if it breaks the cartel, while the remaining firms remain loyal. If firms interact only once, if products are homogenous, if firms compete in price, and if marginal cost is constant, theory even predicts that strategic interaction forces firms to set the market clearing price. For society, this would be welcome news. Without antitrust intervention, the market outcome maximises welfare. The argument becomes even stronger if the opposite market side has a chance to defend itself; if imposing harm on the opposite market side is salient; if it is clear that cartels are at variance with normative expectations prevalent in society. There is an equally long list of reasons, though, why such optimism might be unwarranted: capacity is limited; interaction is repeated, and the end is uncertain; firms might be willing to run a limited risk of being exploited by their competitors, hoping that the investment pays. This paper explores the question both theoretically and experimentally. In the interest of capitalising on a rich body of experimental findings, and on the concept of conditional cooperation in particular, the paper offers a formal model that interprets oligopoly as a linear public good.
Cartel, Oligopoly, Bertrand, Cournot, Public Good, Externality, Experiment
Abstract: Broken Windows: the metaphor has changed New York and Los Angeles. Yet it is far from undisputed whether the broken windows policy was causal for reducing crime. In a series of lab experiments we show that first impressions are indeed causal for cooperativeness in three different institutional environments: absent targeted sanctions; with decentralised punishment; with decentralised punishment qualified by the risk of counterpunishment. In all environments, the effect of first impressions cannot be explained with, but adds to, participants’ initial level of benevolence. Mere impression management is not strong enough to stabilise cooperation though. It must be combined with some risk of sanctions.
Broken Windows, Impression Management, Criminal Policy, Public Good Experiment
Abstract: In the US or in the UK, the presence of institutional investors in real estate markets is an old phenomenon. Specifically, Real Estate Investment Trusts are an old industry. Due to a difference in tax law, the market share of REITs in Germany has been minimal until very recently. Now the legislator has extended the tax privileges held by real estate funds to REITs, expecting that the change will make Germany an attractive place for international investors in these markets. While the effect on capital markets is planned, the German legislator has not been very attentive to likely side effects on the proper functioning of real estate law, landlord and tenant law, and zoning law. The paper analyses these effects, and points to potential legislative concerns.
Abstract: Two suppliers of a homogenous good know that, in the second period, they will be able to collude. Gains from collusion are split according to the Nash bargaining solution. In the first period, either of them is able to invest into process innovation. Innovation changes the status quo pay-off, and thereby affects the distribution of the gains from collusion. The resulting innovation incentive is strictly smaller than in the competitive case.
Duopoly, Collusion, Innovation Incentives
Abstract: Providing public goods is hard, because providers are best off free-riding. Is it even harder if one group’s public good is a public bad for another group or, conversely, gives the latter a windfall profit? We experimentally study public goods provision embedded in a social context and find that in the absence of explicit norms externalities have almost no effect. With an endogenously formed provision norm positive as well as negative externalities dampen provision as compared to no externalities. We explain the surprisingly low provision under positive externalities by the providers’ increased risk of inequity and stress the importance of institutions sustaining conditional cooperation.
Public Good, Externality, Conditional Cooperation, Inequity Aversion, Norms
Abstract: Continental law is irrational. American law is irresponsible. These beliefs are the essence of one of the few true conflicts between American common law and Continental Civil Law. At the surface, the conflict is confined to an apparently technical issue in the law of evidence. On the European continent, for the court to hold against the defendant, the judge must be convinced that the facts brought forward by the plaintiff in support of the claim are indeed true. In principle, Continental law does not differentiate between civil law and criminal law. The standard of proof is in time conviction throughout. By contrast, American law has three different standards of proof. In criminal law, the charge must be established “beyond a reasonable doubt.” In civil law, the plaintiff prevails only if “the preponderance of the evidence” is in the plaintiff’s favor. Only in a limited number of civil law matters, of particular gravity for the defendant, must the intermediate standard of “clear and convincing evidence” be met.
Abstract: Does probation pay a double dividend? Society saves the cost of incarceration, and convicts preserve their liberty. But does probation also reduce the risk of recidivism? In a meta-study we show that the field evidence is inconclusive. Moreover it struggles with an identification problem: those put on probation are less likely to recidivate in the first place. We therefore complement the field evidence by a lab experiment that isolates the definitional feature of probation: the first sanction is conditional on being sanctioned again during the probation period. We find that probationers contribute less to a joint project; punishment cost is higher; efficiency is lower; inequity is higher. While experimental subjects are on probation, they increase their contributions to a joint project. However, once the probation period expires, they reduce their contributions. While in the aggregate these two effects almost cancel out, critically those not punished themselves do trust the institution less if punishment does not become effective immediately.
probation, recidivism, public goods, punishment, experimental economics
Abstract: On both sides of the Atlantic, legislators consider a cap on manager income. As a redistributive intervention, the cap would be misplaced. It affects such a small number of persons that the effect on the Gini coefficient would be negligible. Redistribution is, however, not the raison d’être of the rule. The public perceives a very high yearly income of some as a signal for a lack of solidarity in society, especially if recipients are responsible for low wages or even unemployment of many. Based on demoscopic data from Germany, this article shows that generalised trust in capitalism has indeed severely suffered. It explains why this is troublesome news for the legal order. From this starting point, it discusses the justification of a cap on manager income, despite the fact that the German constitution (unlike the US Lochner jurisprudence) in principle protects economic freedom of managers, firms and stockowners. While it cannot offer a strict proof that manager income works as a signal, if offers a piece of indirect evidence. By way of regression analysis, it shows that the Gini coefficient explains interviewees’ assessment of the justice of capitalism very well, once one controls for the unemployment rate in the year in question, plus the interaction between both explanatory variables.
cap on manager income, generalised trust in capitalism, Gini coefficient, limits to interventions into fundamental freedoms, unemployment rate
Abstract: Ever since the heyday of the Chicago School, antitrust intervention has been under attack. One of the stronger counter-arguments is behavioural. Models predicting the absence of a social problem rely on the assumption that all agents are prevoyant maximisers of profit. Many experiments have shown that subjects are more likely to collude. However, other experimental findings point to behavioural forces mitigating the social detriment. Subjects collude less if they know they inflict harm on others. And they cooperate more if the structurally identical game is framed neutrally. Arguably this setting does not give them a chance to activate their world knowledge on the undesirability of collusion. The experiment to be presented puts these two forces to the direct test: externalities, and normativity. The main finding is this: only normativity helps. Society cannot dispense of antitrust intervention.
Abstract: The human mind is not a general problem solving machine. Instead of deliberately, consciously and serially processing the available information, men can rely on routines, rules, roles or affect for the purpose. They can bring in technology, experts or groups. For all of these reasons, men have a plurality of problem solving modes at their disposition. Often, the meta-choice of problem solving mode matters for behavioural output. Some performance standards are only to be met if a certain problem solving mode is used, like a well-established skill. Other requirements are easier to fulfil with some problem solving modes. This explains why institutions frequently impact on the choice of problem solving mode. To show how institutions are able to do that, a model of problem solving modes is developed. It allows to systematise the access points for institutional intervention.
Abstract: Oligopoly has been among the first topics in experimental economics. Over half a century, some 150 papers have been published. Each individual paper was interested in demonstrating one effect, but in order to do so, experimenters had to specify many more parameters. Thus they have generated a huge body of evidence, untapped so far. This meta-analysis makes this evidence available. More than 100 of the papers lend themselves to calculating an index of collusion. The database behind this paper covers some 500 different settings. The experimental results may be normalized as a percentage of the span between the Walrasian and the Pareto outcomes. In the same way, results may be expressed as a percentage of the distance between the Nash and the Pareto outcomes. For each and every one of the parameters, these two indices make it possible to answer two questions: How far is the market outcome away from the competitive equilibrium? And how good is the Nash prediction? Most importantly, however, the meta-analysis sheds light on how features of the experimental setting interact with each other. Most main effects and many interaction effects are indeed statistically significant.
Abstract: Opportunities and risks are twins. There are few to deny the opportunities of global networks in general and of the Internet in particular. But many fear for the concomitant risks, or what they perceive as a risk. Racists speech, pornography and personality profiling rank highest in public awareness. Some concerns are quasi universal, like child pornography. For others there are at least differences of degree. Following its history, Germany has tabooed right wing publications. And Americans, in their majority, feel hurt by nudity, which most Germans find quite inoffensive. Such examples lure into a simplistic opposition: Global networks threat local values. The reality of global networks, and of their interrelation with local values, is much more complex. The National Research Council has set up a binational, German-American committee to study the question. The committee has convoked two symposia. This abstract refers to the final report drafted by the committee and approved by the review process of the National Research Council. The report brings to bear knowledge from many fields: technology, economics, political science, communications science and the law. The report starts by outlining how the historically highly unlikely success of the Internet could happen. It lays conceptual foundations by determining the individual and social functions of values, what makes them local, and how global networks can impact on them. On these conceptual foundations chapters are built that look at democracy and political institutions, the highly contentious issues of free speech, privacy and freedom of information, and at commercial values. Each of these chapters demonstrates that the issue is by far not as simple as public discourse tends to assume. Not surprisingly, the potential solutions are not simple either. Characteristically, they imply considerable institutional creativity, and usually some hybrid mix of private and public, national, international and sub-national inputs. The report concludes with an outlook beyond the German-American perspective. Posted along with this abstract is a short document, summarizing the basic insights of the report. The full report is accessible on the web.
Global networks, Internet, Cyberspace, local values, local culture, free speech, privacy, freedom of information, electronic commerce, Internet governance, hybrid governance
Abstract: Leviathan or Behemoth, Athens or Orwell, the end of the nation state or political power without limits - this is how differently global networks, and the Internet in particular, are perceived. Views differ fundamentally not only in the public debate. Academics are also divided in their judgement and forecasts. These divergent views must be taken into account in developing the policies and governance structures to facilitate and regulate high bandwidth communications, encryption, intellectual property protection, e-commerce and even web content. But an overarching issue that must be addressed in developing policies and structures is the public's concern about the potential impact of the Net on the sustainability of differing local values. This is the perspective from which the present volume addresses the governance of global networks. The topics stretch from pornography and hate speech to culture, from privacy and freedom of information to democracy. For each of these topics, the volume looks at individual governance tools and how they are interrelated, be they legal or technical, public or private, or some hybrid mix. The volume assembles the following papers: B. Holznagel, Responsibility for Harmful and Illegal Content as well as Free Speech on the Internet; H. Burkert, Privacy - Data Protection; R. Gellman, Privacy and Harmonization; J. Wieland, Freedom of Information; J. Arlandis, The Clerk, the Merchant and the Politician; J. Abramson, Democracy and Global Communications; H. Trute, The Impact of Global Networks on Political Institutions and Democracy; T.Tranvik/M. Thompson/P.Selle, The Technomorphic Approach to ICT Policy; J. Goldsmith, The Internet, Conflicts of Regulation, and International Harmonization; W. Osthaus, Local Values, Global Networks and the Return of Private Law; K. Grewlich, Conflict and good Governance in 'Cyberspace'.
Abstract: Opportunities and risks are twins. There are few to deny the opportunities of global networks in general and of the Internet in particular. But many fear for the concomitant risks, or what they perceive as a risk. Racist speech, pornography and personality profiling rank highest in public awareness. Some concerns are quasi universal, like child pornography. But for others there are at least differences of degree. Following its history, Germany has tabooed right wing publications. And Americans, in their majority, feel hurt by nudity, which most Germans find quite inoffensive. Such examples lure into a simplistic opposition: global values threaten local values. The reality of global networks, and of their interrelation with local values, is much more complex. This volume explores different paths for understanding global networks, local values, and their reciprocal impact. It streches from social philosophy to technology forecasting, from cultural theory to law, from systems theory to economic history, from sociology to external relations studies, from economics to political sciences. The volume collects the following papers: W. Kersting, Global Networks and Local Values -- D. Farber, Predicting the Unpredictable - Technology and Society -- P. David, The Internet and the Economics of Network Technology Evolution -- M. Hutter, The Commercialization of the Internet -- D. Baecker, Networking the Web -- M. Thompson, Global Networks and Local Cultures: What are the Mismatches? -- K. Keniston, Cultural Diversity or Global Monoculture -- M. Kahler, Information Networks and Global Politics -- R. Werle, The Impact of Information Networks on the Structure of Political Systems -- S. Sassen, The Impact of the Internet on Sovereignty -- C. Engel, The Internet and the Nation State -- L. Muller, Discussion Report
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