• Selected
• Entire List

Abstract:
Economic analysis plays a major role in the American legal discourse, while its position in the German-speaking legal debate remains comparatively limited. In Germany and Austria, a widespread aversion against law and economics can be observed among legal scholars. This article advances an explanation for this divergence on the basis of two main factors: First, American legal realism enjoyed great success, whereas the German free-law movement failed to leave a lasting impression. While legal realism transformed American legal thought and opened up the discourse to policy arguments, the predominant German legal theory emphasizes the internal coherence of the legal system, and assigns only a limited role to external elements. Second, the different philosophical roots and attitude towards utilitarianism and consequentionalist thinking in general can explain why law and economics takes a prominent position in the US legal academia.

Law and Economics, Legal Theory, Legal History, Legal Realism, Free-law movement, Legal Evolution, Utilitarianism, Europe, Germany, United States, Divergence

Abstract:
Economic analysis plays a major role in the American legal discourse, while its position in the German-speaking legal debate remains comparatively limited. In Germany and Austria, a widespread aversion against law and economics can be observed among legal scholars. This article advances an explanation for this divergence on the basis of two main factors: First, American legal realism enjoyed great success, whereas the German free-law movement failed to leave a lasting impression. While legal realism transformed American legal thought and opened up the discourse to policy arguments, the predominant German legal theory emphasizes the internal coherence of the legal system, and assigns only a limited role to external elements. Second, the different philosophical roots and attitude towards utilitarianism and consequentionalist thinking in general can explain why law and economics takes a prominent position in the US legal academia. We argue that a convergence of the discourses over the medium term is unlikely.

Law and Economics, Legal Theory, Legal History, Legal Realism, Free-law movement, Legal Evolution, Utilitarianism, Europe, Germany, United States, Divergence

Abstract:
We address one of the cardinal puzzles of European corporate law: the lack of derivate shareholder suits. In the vast majority of European jurisdictions, shareholders can bring a derivative action (for damages) against the management for breach of fiduciary duty. In all of these countries, a derivative lawsuit is the only remedy against managerial misconduct. In spite of corporate fraud by managers there are no such lawsuits. We explain this apparent paradox on the basis of percentage limits. The laws of percentage limits require shareholders to hold a minimum amount of typically 5% to 10% in order to bring an action against the management and they are extremely wide-spread in Europe. Since small shareholders are not entitled to sue, there is an incentive for managers to collude with large shareholders. In a four-stage-model, we show that, given the current percentage limits, managers will misappropriate corporate assets and split the proceeds with large shareholders. Contrary to current and past approaches to agency theory, we find that, in this equilibrium, (1) large shareholders do not monitor the management, (2) small shareholders do not free ride and (3) the residual ownership is not held by the shareholders on the whole but by the managers and the large shareholders. This interpretation of the current situation is consistent with empirical studies that find a more concentrated shareholder structure in Europe than in the United States.

Agency Theorey, Derivative Suits, Shareholder Suits, Percentage Limits, Collusion, Residual Owners, Corporate Fraud, Managerial Misconduct, European Law, European Corporations, Europe, Large Shareholders, Free Rider, Collective Action, Settlements, Monitoring, Rent-Seeking

Abstract:
Twenty-first century's corporate scandals have put the traditional debate on insider trading in a new perspective. A small number of corporate law scholars have started to distinguish between insider trading on positive information and insider trading on negative information (or non-whistleblower information and whistleblower information, respectively). They essentially argue that cases like Enron would not have happened if insider trading were allowed. Insiders would have started to trade on bad news and thereby disclose information that was concealed. The fact that managers were able to keep negative information secret was due to a prohibition on insider trading which allowed them to agree not to trade on that information. Anyone who did could be reported to the SEC, thereby deterring the distribution of negative information through market mechanisms. The distinction between positive and negative information was long recognized by the Supreme Court of the United States, most prominently in Dirks v. SEC. The article seeks to consolidate the recent reinterpretations of this important case according to economic analysis. It argues that the law distinguishes between positive and negative information and highlights the efficiencies of this distinction. It furthermore shows how the production of information can be separated from the distribution of information, in order to avoid potential distortions.

Abstract:
The rule of laesio enormis has its origins in ancient Roman law and can be found e.g. in the Austrian Civil Code. Under this rule, a party may seek to have the contract cancelled where the value of the consideration owed by one party is more than double that of the other contracting party. The right would be triggered in the case of the purchase of a painting for a presumed market value of 100, where the true value (the painting is in fact from a famous artist) is 600. Accordingly, the vendee is dissuaded from investing into producing information because he is not guaranteed to recoup the costs he has incurred. By virtue of the laesio enormis rule the buying party will be inclined to offer at least 300; in doing so, he may be giving away valuable information by signalling to the seller that the painting has a higher value. Overall, this results in the underproduction of information and is detrimental for social welfare.

Productive information, unproductive information, foreknowledge, information asymmetry

Abstract:
Commentators on insider trading are divided into two camps, one in favor of regulation, the other in favor of deregulation. The pleadings for the two positions are manifold but not irreconcilable. We show that important gains to social welfare come with insider trading on negative information (sales), whereas losses often result from the use of positive information (purchases). Thus, we look at a regulation that allows insiders to use negative but not positive non-public information. Because positive information will be disclosed much sooner than negative information, the marginal incentive (and marginal gain to social welfare, respectively) of insider trading as a disclosure mechanism is greater for sales than for purchases. Likewise, stock bubbles generally occur in terms of overvaluations, not undervaluations, emphasizing the importance of insider trading on negative information as a deterrent. The case law on insider trading has long since recognized the distinction between the two types of information, a fact that commentators have either neglected or criticized. A reinterpretation allows us to reconcile presumed contractions of the case law. Our analysis also explains empirical data suggesting that insider trading involves more selling than buying, while enforcement actions focus on purchasing activity.

insider trading, stock bubbles, herding, disclosure, Dirks, O'Hagan

Abstract:
This article addresses a European infringement proceeding against Spain, which was joined by other Member States in 2007, including Finland, the United Kingdom and Poland. The European Commission alleges a violation of the Second Company Law Directive through a discrimination of shareholders. It argues that Spanish companies are allowed to issue shares below the market value and exclude the pre-emption rights of the existing shareholders. Such share issues result in a wealth transfer from old to new shareholders(often referred to as a dilution of shareholdings), contrary to the equal treatment clause of the Second Directive. This article shows that the dispute is partly due to a misunderstanding of Spanish law, including legal culture. It also finds that the allegations have merit to some extent but crucially depend on the fact finding of the European Court of Justice.

pre-emption rights, dilution, discrimination, exclusion, European law, infringement proceeding, Second Directive, Spain, new shares, convertible bonds, company's interests, equal treatment

Abstract:
This paper shows that it may be socially optimal to grant accident victims less than full compensation. In our framework, firms are liable under product liability but also invest in care to prevent consumers switching to competitors. Affecting the partition of consumers by means of care-taking is not desirable from a social standpoint. Consequently, it may be optimal to reduce liability below full compensation in order to adjust firms’ care incentives.

Tort law, product liability, care level, asymmetric information, switching

Abstract:
This article shows that it may be socially optimal to grant accident victims less than full compensation. In our framework, firms are liable under product liability but also invest in care to prevent consumers switching to competitors. Affecting the partition of consumers by means of care-taking is not desirable from a social standpoint. Consequently, it may be optimal to reduce liability below full compensation in order to adjust firms’ care incentives.

Tort law, product liability, care level, asymmetric information, switching

Abstract:
This article addresses a European infringement proceeding against Spain, which was joined by other Member States in 2007, including Finland, the United Kingdom and Poland. The European Commission alleges a violation of the Second Company Law Directive through a discrimination of shareholders. It argues that Spanish companies are allowed to issue shares below the market value and exclude the pre-emption rights of the existing shareholders. Such share issues result in a wealth transfer from old to new shareholders (often referred to as a dilution of shareholdings), contrary to the equal treatment clause of the Second Directive. This article shows that the dispute is partly due to a misunderstanding of Spanish law, including legal culture. It also finds that the allegations have merit to some extent but crucially depend on the fact finding of the European Court of Justice.