Economics of Remedies - The Perspective of Corporate Law

Law of Remedies: A European Perspective edited by Franz Hofmann and Franziska Kurz, Cambridge 2019 (Intersentia Ltd.), pp. 81-106

23 Pages Posted: 20 Mar 2019 Last revised: 6 Jul 2022

See all articles by Klaus Ulrich Schmolke

Klaus Ulrich Schmolke

Johannes Gutenberg University Mainz - Faculty of Law and Economics

Date Written: February 1, 2019

Abstract

From a law-and-economics perspective the primary goal of (legal) remedies is to enhance social welfare by minimising social costs. Remedies help to achieve cost internalisation since they provide means by which third parties who are negatively affected by the respective action are entitled to veto the action (property rule) or to claim compensation for their losses (liability rule).

Examples from German stock corporation law illustrate the respective strengths and weakenesses of both types of rules. The right of each single shareholder to claim the rescission of an (allegedly) unlawful shareholders’ resolution by which the shareholder can effectively stall the execution of the underlying transaction (property rule) can lead to very expensive holdout problems. Liability rules like the shareholder’s appraisal remedy, on the other hand, may suffer from valuation problems. Additional incentive issues occur where the law employs the shareholder to protect the interests of the company, i.e. the interests of the shareholders in their entirety.

Keywords: law and economics, economics of remedies, corporate law, liability, property

JEL Classification: K11, K13, K22

Suggested Citation

Schmolke, Klaus Ulrich, Economics of Remedies - The Perspective of Corporate Law (February 1, 2019). Law of Remedies: A European Perspective edited by Franz Hofmann and Franziska Kurz, Cambridge 2019 (Intersentia Ltd.), pp. 81-106, Available at SSRN: https://ssrn.com/abstract=3333385

Klaus Ulrich Schmolke (Contact Author)

Johannes Gutenberg University Mainz - Faculty of Law and Economics ( email )

D-55099 Mainz, 55128
Germany

HOME PAGE: http://https://schmolke.jura.uni-mainz.de/

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