A Law and Economics View on Harmonization of Procedural Law
RILE Working Paper No. 2010/09
22 Pages Posted: 2 Sep 2010
Date Written: September 1, 2010
Even though there exists an extensive Law and Economics literature on the topics of procedural law and harmonization of law, very little has been written on harmonization of procedural law as such.
In this paper I first provide a brief overview of the economic approach to legal intervention, private enforcement and procedural law. Subsequently, I discuss the economics of harmonization of (substantive) private law. The traditional legal arguments in favor of harmonization (differences in legal rules between countries result in legal uncertainty and increased costs and therefore hinder cross-border trade, and harmonization would create a level playing field) turn out to be unconvincing. The economic analysis of law provides several arguments against harmonization (regulatory competition enables satisfying a larger number of preferences, it enables learning effects, (centralized) legislators suffer from limited information and the possible influence of interest groups should be taken into account) and in favor of it (the need to internalize interstate externalities, the desire to avoid a race to the bottom, decreasing transaction costs and profiting from economies of scale). These arguments have to be weighed in order to reach a conclusion on the desirability of harmonization.
Such a weighing shows that there is, at best, a limited scope for harmonization of procedural law (and then only as an additional option). Harmonization would remove the possible learning effects and does not allow satisfying a larger number of preferences. The possible arguments in favor of harmonization of procedural law seem week, especially now procedural law is closely connected to the underlying substantive law. The only potentially strong argument is the reduction of transaction costs. It is ultimately an empirical matter if this argument outweighs the arguments against harmonization. The 2008 Oxford Civil Justice Survey in my view suggests that this is not the case.
Keywords: Harmonization, Law and Economics, Level Playing Field, Procedural Law, Race to the Bottom, Transaction Costs
JEL Classification: K41
Suggested Citation: Suggested Citation