Economic Analysis of Public Law

Description

This textbook analyses from an economic perspective the phenomena of public law, the constitution, the democratic and political process, federalism, NGOs, administration and state decisions. It also examines selected fields of administrative law, including finance and tax law, public economic law and environmental law. Although the book uses examples from different legal orders, it maintains a focus on continental European law, as it aims to advance the law and economics approach in Europe. Preface Contents List of Abbreviations and Acronyms List of Figures Part I: Basic Principles 1: Principles of an Economic Analysis of Public Law 1.1 A Study of Law from Outside the Legal Field: Functions and Orientation of an Economic Analysis of Law 1.1.1 Economic Analysis of Law: An Introduction 1.1.2 Economic Analysis of Public Law and Related Sciences 1.1.2.1 Sociology of Law 1.1.2.2 Legal Anthropology 1.1.2.3 Legal Psychology 1.1.2.4 Comparative Law 1.1.2.5 Legal Dogmatics 1.2 Theoretical Concepts 1.2.1 Basic Methodological Principles 1.2.1.1 The Importance of Jurisprudence in a Narrower Sense (Legal Dogmatics) Within Economics 1.2.1.2 Jurisprudence and Economics as Phenomenological and Normative Sciences 1.2.1.3 Normative Analysis of Law 1.2.1.4 Positive Analysis of Law 1.2.2 Methodological Foundations of the Economic Analysis of Law 1.2.2.1 Theoretical and Empirical Research 1.2.2.2 The Economic Paradigm and the Concept of Homo Economicus 1.2.2.2.1 Methodological Individualism 1.2.2.2.2 The Premise of Resource Scarcity 1.2.2.2.3 The Homo Economicus Model of Behaviour 1.2.2.2.3.1 Maximisation of Utility as a Basic Assumption of the Rational Choice Model 1.2.2.2.3.2 The Rational Behaviour Assumption: Criticism and Modifications Relativising the Assumption of Complete InformationRelativising the Assumption of Complete Information Bounded RationalityBounded Rationality 1.2.2.2.3.3 Constraints and Preferences 1.2.2.3 Institutional-Economic Foundations of Public Law 1.2.2.3.1 Economics as a Theory of Interaction 1.2.2.3.2 Principles of Institutional Economics 1.2.3 The Theory of Market Failure 1.2.3.1 Coordination Problems and Dilemma Structures (Theory of Market Failure I) Discussion: Game Theory 1.2.3.1.1 The Concept and Typology of Dilemma Structures 1.2.3.1.2 The `Prisoner´s Dilemma´, as Presented by Albert W. Tucker 1.2.3.1.3 Variations Discussion: Battle of the Sexes 1.2.3.2 The Concept of Externalities (Theory of Market Failure II) 1.2.3.2.1 The Importance of External Effects 1.2.3.2.2 Strategies to Prevent Undesirable Consequences of Externalities 1.2.3.2.2.1 Avoiding the Production of External Effects Through Rules and Prohibitions 1.2.3.2.2.2 Internalising External Effects 1.2.3.2.2.3 Preventing External Effects Through Mergers of Affected Parties or the Collective Provision of Services 1.2.3.3 The Theory of Public Goods (Theory of Market Failure III) 1.2.3.4 Transaction Costs (Theory of Market Failure IV) 1.2.3.5 Information Failure Discussion: The Market for `Lemons´ Discussion: The Principal-Agent Theory (`Hidden Action´) Discussion: Moral Hazard 1.2.3.6 Incomplete Markets and Monopolistic Structures 1.2.3.7 `State Failure´ and the New Political Economy 1.3 Summary References 2: State and Constitution 2.1 Principles of an Institutional Economics of the State and Constitution 2.2 Normative Constitutional Theory in the Form of Contract Doctrine 2.2.1 An Interpretation of Constitutional Democracy Based on Contract Theory 2.2.1.1 The Foundations of Contract Theory 2.2.1.2 Consensus as a `Regulative Idea´ Discussion: Discourse Theory of Law (Jürgen Habermas) 2.2.1.3 Related Considerations 2.2.2 Forms of Government as a Subject of Economic Theory 2.2.3 Economic Theory of Democracy 2.2.3.1 Basic Principles 2.2.3.2 The Political Process 2.2.3.2.1 The Role of Politicians in the Political Process 2.2.3.2.2 The Role of Parties in the Political Process 2.2.3.2.3 The Role of Information in the Political Process 2.2.3.2.4 The Role of Money in the Political Process (Party Finance) 2.2.3.3 Transforming Individual Decisions Into Collective Decisions: Problems of Social Choice 2.2.3.3.1 Fundamental Problems with Majority Decisions and Arrow´s Paradox 2.2.3.3.2 Distortion of Collective Decisions 2.2.3.3.3 The Median Voter Model and Its Critics 2.2.3.3.4 Rational Voting Behaviour and the Theory of Low-Cost Situations Discussion: Low-Cost Situations 2.2.3.3.5 Indirect vs Direct Democracy 2.3 Functions of the State 2.3.1 Management of Institutions 2.3.2 Typological Overview of State and Government Functions (Fields of Action) 2.3.2.1 Provision of Pure Public Goods 2.3.2.2 Facilitation of Cooperation and Competition and Reduction of Transaction Costs 2.3.2.3 Establishment and Recognition of Property Rights 2.3.2.4 Resolution of Information Asymmetries 2.3.2.5 Elimination or Reduction of Externalities 2.3.2.6 Merit Goods 2.3.2.7 Redistribution and Distributive Goods 2.3.2.8 Goods with Existence Value or Bequest Value 2.3.2.9 Natural Monopolies 2.3.2.10 Protection Against Individual Risks 2.4 State Structure (Specifically Federalism) 2.4.1 The Question of Who Should Control the State: Separation of Powers (Horizontal) 2.4.1.1 Initial Considerations 2.4.1.2 Separation of Powers Between the Legislature, the Executive and the Judiciary 2.4.1.3 Mechanisms to Balance Power 2.4.2 Federalism: Separation of Powers (Vertical) 2.4.2.1 Basic Principles 2.4.2.2 Advantages and Disadvantages of Federalising State Decisions 2.4.2.2.1 The Justification for Federal Statehood Discussion: The Theory of `Exit´ and `Voice´ 2.4.2.2.2 Disadvantages of Federalism 2.4.2.2.3 Empirical Results 2.4.2.3 Economic Analysis of Select Federal Systems 2.4.2.3.1 Typology of Federal Systems 2.4.2.3.2 Germany 2.4.2.3.3 Switzerland 2.4.2.3.4 European Union 2.5 Open Statehood 2.5.1 The Need to Open Up the State to the Outside World 2.5.2 Principles of International Cooperation Between States 2.5.2.1 Customary International Law 2.5.2.2 International Treaties 2.5.2.3 International Institutions and Organisations 2.5.3 Questions on the Content of International Law 2.5.3.1 Formal Aspects 2.5.3.2 Material Aspects 2.6 Summary References 3: Economic Theory of Institutions and Organisations 3.1 Basic Principles 3.1.1 The Importance of Organisations 3.1.2 Approaches in Organisational Theory 3.1.2.1 Classical Organisational Economics 3.1.2.2 Action Concepts Based on the New Institutional Economics 3.1.2.3 Network Approaches from a Systems Perspective 3.2 Key Topics in Organisational Economics 3.2.1 Freedom and Restrictions in the Formation of Organisations 3.2.2 Decision-Making, Distribution and Control Problems in Organisations 3.2.3 External Relationships 3.2.4 Regulatory Challenges Related to Internal and External Relationships 3.3 Types of Organisations 3.3.1 The Firm 3.3.1.1 Basic Principles 3.3.1.2 Company Law and Business Organisation 3.3.1.2.1 Limitation of Liability 3.3.1.2.2 Co-determination 3.3.1.2.3 Executive Compensation 3.3.2 Interest Groups 3.3.2.1 Reasons for the Formation of Non-Economic Organisations That Influence Social and Political Processes 3.3.2.2 Impact of Interest Group Activity on the Political Process Discussion: The economic theory of rent seeking 3.3.2.3 Impact of Political System Structure on Interest Group Activity 3.3.2.4 The Example of Trade Unions 3.3.3 The Media 3.3.3.1 The Interests of Stakeholders 3.3.3.2 Market Failure in the Media Sector 3.3.3.3 Media Regulation in the Public Interest 3.3.4 Parties 3.3.4.1 Interests of the Involved Actors 3.3.4.2 Constitutional Foundations 3.3.4.3 State Regulation 3.4 Summary References 4: Theory of State Decision-Making 4.1 Decision-Makers 4.1.1 Politicians 4.1.2 The Administration (Bureaucratic Theory) 4.1.2.1 Performance of State Tasks by Officials 4.1.2.1.1 Fulfilment of State Tasks by an Administration in an Institutional Sense or Through Privatisation 4.1.2.1.2 Regulation by Private or Public Law 4.1.2.2 Conflict Minimisation and Budget Maximisation as Dominant Strategies of the Administration 4.1.2.3 The Hierarchical Structure of Bureaucracies and the Principal-Agent Problem 4.2 Regulation 4.2.1 Key Concepts 4.2.1.1 Regulation as a Public Good 4.2.1.2 The `Regulation Market´ 4.2.1.3 The `Regulatory Cycle´ 4.2.2 Capture Theory and Interest Groups 4.2.3 Legal-Impact Research 4.2.3.1 Methodological Foundations 4.2.3.2 Control by Procedure 4.2.3.3 Regulatory Impact Analysis, Evaluation and Amendment of the Law 4.2.4 `Good Governance´ 4.2.4.1 `Good Governance´ as an Interdisciplinary Challenge 4.2.4.2 Diversity and Combination of Policy Instruments 4.3 Summary References Part II: Focus Areas 5: Public Finance 5.1 State Budget 5.2 Government Spending 5.2.1 Normative Determination of the Optimal Government Share 5.2.1.1 How Can the Government Share (the `Public Spending Ratio´) Be Determined at All? 5.2.1.2 The Theory of Public Goods 5.2.1.3 The Tax-Price Theory 5.2.2 State Decisions on Government Spending 5.2.2.1 The Law of Increasing State Activity 5.2.2.1.1 Voter Demand for Redistribution 5.2.2.1.2 The Theory of Interest Groups (M. Olson 1965) and a Model of Lobbying (G.S. Becker 1983) 5.2.2.1.3 The Influence of the Bureaucracy 5.2.2.1.4 Fiscal Illusion 5.2.2.1.5 Problems with Limiting Government Spending 5.2.2.1.5.1 Material Limitations on Government Revenue 5.2.2.1.5.2 Procedural Restrictions to Limit Government Spending 5.2.2.2 Reasons for a Potential Trend Reversal 5.3 Government Revenue 5.3.1 Taxes and Fees 5.3.1.1 The Concept and Effects of Taxation 5.3.1.1.1 The Concept of Taxation 5.3.1.1.2 The Effects of Taxation 5.3.1.2 Options for Government Tax Collection and Types of Tax 5.3.1.3 Tax Equity and Principles of Taxation 5.3.1.3.1 Equivalence Principle (Benefit Approach) 5.3.1.3.2 Ability-to-Pay Principle 5.3.1.4 Theories of Taxation 5.3.1.4.1 Welfare-Economic Theory of Taxation 5.3.1.4.2 New Political Economy and Normative Theories of Taxation 5.3.1.4.3 Feedback Theories of Taxation 5.3.1.4.3.1 Tax Planning and Tax Avoidance 5.3.1.4.3.2 Tax Evasion and Tax Fraud 5.3.1.4.3.3 Shadow Economy 5.3.1.4.3.4 Transfers to Other Jurisdictions as a Method of Tax Sheltering and Tax Evasion 5.3.1.4.3.5 Consequences for Tax Policy and Tax Rates: The `Laffer Curve´ 5.3.1.4.3.6 International Tax Competition 5.3.2 Government Debt 5.3.2.1 Foundations 5.3.2.1.1 The Concept and History of Government Debt 5.3.2.1.2 Effects of Government Debt 5.3.2.1.3 Causes of Government Debt 5.3.2.2 Material Approaches to Limit Government Debt 5.3.2.2.1 Importance of Future Utility with Regard to Intergenerational Justice 5.3.2.2.2 Importance of Factors Related to Macroeconomic Equilibrium 5.3.2.2.3 Control and Sanctions 5.3.2.2.4 Limits on Public Debt in EU Law 5.3.2.3 Formal Approaches to Limit Government Debt 5.4 Public Finances Under Federalism 5.4.1 Basic Principles 5.4.2 Spending Power 5.4.3 Revenue Powers, Especially Tax Sovereignty 5.4.4 Transfer Payments and Fiscal Equalisation Schemes 5.4.5 Macroeconomic Responsibility 5.5 Summary References 6: Public Economic Law 6.1 Basic Principles 6.1.1 General Economic History 6.1.2 Constitutional and European Legal Framework for Economic Policy 6.1.2.1 Economic Policy Guidelines in European Primary Law 6.1.2.2 National Economic Constitutions 6.1.3 Topics in Legal Economics 6.1.3.1 Economic Analysis of Public Economic Law 6.1.3.1.1 Public Economic Law as a State Regulatory Instrument 6.1.3.1.2 Public Economic Law as a Public Good 6.1.3.1.3 The Economy as a System 6.1.3.1.4 Competition Between Economic Systems and Economic Orders 6.1.3.2 Economic Analysis of Markets and Firms 6.2 State and Competition 6.2.1 Guarantee of Effective Competition Between Private Parties 6.2.1.1 Protection of (Existing) Competition 6.2.1.2 Creation of (New) Competition 6.2.2 State Activities Related to Competition 6.2.2.1 State-Owned Enterprises (SOEs) 6.2.2.1.1 The State as an Entrepreneur: Current and Historical Relevance 6.2.2.1.2 Definition and Forms of Public (State-Owned) Enterprises 6.2.2.1.3 Market Failures Associated with Public Enterprises 6.2.2.1.4 The Legal Framework for Public Enterprises 6.2.2.2 Public Procurement 6.2.2.2.1 Economic Analysis of Public Contracts 6.2.2.2.2 Regulatory Framework 6.2.2.2.3 A Law-and-Economics Perspective on Procurement Procedures (the `Most Economically Advantageous Tender´) 6.2.2.2.4 A Law-and-Economics Perspective on Extraneous Criteria in Public Procurement 6.2.2.2.5 Enforcement of Public Procurement Rules Related to Bid Rigging 6.2.2.3 Subsidies 6.2.2.3.1 Definition and Forms 6.2.2.3.2 Justification for Subsidies 6.2.2.3.3 Positive Analysis of Subsidy Implementation 6.2.2.3.3.1 Incidence Analysis and Inefficiencies in Subsidy Policy 6.2.2.3.3.2 The Political Market for Subsidies 6.2.2.3.4 Recommendations to Improve the Subsidy System 6.3 Economic Regulation 6.3.1 Basic Principles 6.3.2 Macroeconomic Policies (Business Cycle or Economic Stabilisation Policy) 6.3.2.1 Overview 6.3.2.2 Macroeconomic Equilibrium and Business Cycle Policy 6.3.2.3 Recommendations for the Legislature 6.3.3 Natural Monopolies and Options for State Regulation 6.3.3.1 Basic Principles 6.3.3.2 Regulatory Challenges in Select Network Industries 6.3.3.2.1 Market Failures 6.3.3.2.2 Enabling Competition 6.3.3.2.3 Universal Services 6.3.4 Traditional Economic Oversight and Regulation 6.4 International Economic Relations and the Global Economic Constitution 6.4.1 Basic Principles 6.4.1.1 The Global Economic Constitution and International Economic Law 6.4.1.2 Economic Perspectives 6.4.2 International Trade Law 6.4.2.1 Theoretical Foundations of Trade Liberalisation 6.4.2.2 General Agreement on Tariffs and Trade (GATT)/World Trade Organisation (WTO) 6.4.2.3 Investment Protection Law 6.4.2.4 Intellectual Property 6.4.2.4.1 Market Failures and Instruments (Especially Patents) 6.4.2.4.2 The Challenge of Efficient Intellectual Property Regulation: The Case of Patents 6.4.2.4.3 International Protection of IP Rights 6.5 Summary References 7: Environmental Economics 7.1 Principles of Environmental Economics 7.1.1 Market Failures in an Environmental Context 7.1.2 The Coase Theorem (Exchange and Negotiated Solutions) 7.1.3 Valuation of Environmental Damage 7.1.3.1 Basic Principles Discussion: Rational Cost-Benefit Analysis 7.1.3.2 Advantages of a Monetised Environmental Valuation 7.1.3.3 Problems with a Monetised Environmental Valuation 7.1.3.4 Methods of Valuation 7.1.3.4.1 Direct Method (Stated Preference Approach) 7.1.3.4.2 Indirect Methods (Revealed Preference Approaches) 7.1.3.4.3 Valuation of Environmental Degradation: Unavoidable but Problematic 7.1.4 Evaluation Criteria for Environmental Policy 7.2 Environmental Policy Measures 7.2.1 Environmental Regulatory Law (`Direct Regulation´, `Command-and-Control Law´) 7.2.1.1 Method of Operation 7.2.1.2 Criticism 7.2.1.3 Modernisation of Environmental Regulatory Law 7.2.2 Environmental Liability 7.2.2.1 Basic Principles 7.2.2.2 Environmental Liability Law in National Legal Systems, with a Focus on Germany 7.2.2.3 Specific Questions in Law and Economics 7.2.2.4 Empirical Studies on the Impact of Environmental Liability 7.2.3 Environmental Taxes and Charges 7.2.3.1 Basic Principles 7.2.3.2 Types of Environmental Taxes and Charges 7.2.3.3 Relevant Issues in an Economic Analysis of Tax Law 7.2.4 Financial Support Programmes 7.2.4.1 Basic Principles 7.2.4.2 Subsidies 7.2.4.3 Support Through Price and Quantity Controls 7.2.5 Environmental Certificate Trading 7.2.5.1 Basic Principles 7.2.5.2 Historical Development and Types of Trading Schemes 7.2.5.3 Legal Framework, Specifically in the Context of European Certificate Trading 7.2.5.4 Assessments Within an Economic Analysis of Law 7.2.6 Informal Instruments of Environmental Policy 7.2.6.1 Voluntary Agreements 7.2.6.2 Environmental Management 7.2.6.3 Product Information 7.2.6.3.1 Market Failures and Corrections 7.2.6.3.2 Opportunities and Challenges 7.2.6.4 Environmental Information 7.3 Instrument Variety and Instrument Mix 7.4 International Aspects of Environmental Policy 7.4.1 Dilemma Structure of Global Environmental Problems 7.4.2 Unilateral Measures by States 7.4.3 International Cooperation 7.4.4 Climate Policy as an Example of International Cooperation 7.4.4.1 Market Failures 7.4.4.2 An Economic Perspective on Basic Structures of International Climate Change Law 7.4.4.3 The Quest for Binding Mitigation Commitments and the Failure of the Kyoto Protocol 7.4.4.4 Further Developments 7.4.4.5 Further Options 7.5 Summary References