Economic Analysis of Civil Law with Examples from Decisions of the German Supreme Court (BGH)
Civil law is more doctrinal and more systematic than Common Law. Common law is more based on cases and precedents. Also in the important common law country USA legal scholarship is traditionally more oriented towards “legal realism” as opposed to “legal formalism”. The schools of legal realism found that often the law in action as well as court decisions can be better understood if one looks at the consequences of the law in society and the economic, social and political structure in which the law operates. Legal formalism however maintains that court decisions are –and should be- dependent on legal concepts or forms and that a proper understanding of such concepts (in German “Begriffe”) is essential for legal scholarship and good legal practice. However in both legal cultures both lines of thinking, legal realism and legal formalism co-exist since long time. There was always acknowledgement in civil law countries and in common law countries that law must be responsive to economic and social developments and that above the concepts and legal forms there exist deep economic and social structures, which play a role in explaining the law and in shaping its development. And in civil law countries as well as in common law countries judges and judiciaries play an important role in concretizing and developing the law. And even though doctrinal thinking and legal forms grossly reduce the complexity of a legal case it is fully understood in civil law countries, that they have often limited value for deciding hard cases.
The discipline of law and economics relates legal norms to the economic concept of economic efficiency and more generally to the consequences of legal norms on the economy and the society at large. This so-called consequentialist attitude to the law is strong in common law countries and in civil law countries. It helps to better understand the social outcome and development of the law. It also helps to solve difficult legal disputes, so called hard cases, in which the use of formal, doctrinal and conceptual methods might not lead to a clear result or might even lead to grossly unreasonable decisions. In such cases the judiciary must use teleological or consequential considerations to arrive at a decision.
This course aims to introduce into the discipline of law and economics with a focus on torts, contract and the corporation. It shows how economic arguments, that is arguments from microeconomic theory and welfare economics can be used in hard cases within the structure of the pre-existing legal forms. These are landmark cases of the German Supreme Court (Bundesgerichtshof or BGH), which my Colleague Hein Kötz, former director of the Max Planck Institute for comparative and international law in Hamburg and myself -using economic arguments and methods- discussed in a joint book titled “Judex Oeconomicus”.
Here is the sequence of teaching. Each of 8 sessions consists of a systematic law and economics part followed by the discussion of a case (named in brackets) related to that part. All literature mentioned in this overview will be made available for you before the class starts.
1. Session: Basics of Law and Economics, The Coase Theorem, Rejection of Pigouvian Economics, Transactions Costs, the Sole Owner Heuristics. Literature: Francesco Parisi, Coase Theorem, NEW PALGRAVE DICTIONARY OF ECONOMICS, 2nd ed.(2007); Case: panic of the pigs (Schweinepanik, BGH).
2. Session: Basics of Law and Economics, Negligence as a Legal and Economic Concept, Literature: Schäfer/Ott, Economic Analysis of Civil Law, Chapter 7, (2012) Negligence and Strict Liability, Case: Road Fencing, (Wildschutzzaun BGH).
3. Session, Pure Economic Loss in Tort and the Tort Contract Boundary, Literature: Mattiaci and Schäfer (2005) The Core of Pure Economic Loss, Cases: (a.The damaged electricity cable, (Stromkabel, BGH) and b. The Consul’s advice, Konsulfall, BGH).
4. Session: Causation as a Legal and Economic Concept, Literature: Schäfer and Ott, Economic Analysis of Civil Law, Chapter 9, Causation, (2012) Case: the contest of architects, (Architektenwettbewerb, BGH).
5. Session: Taking law and compensation for takings from an economic perspective, Literature: Schäfer and Singh (2018) taking of Land by Self Interested Governments, Economic analysis of eminent domain power, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3026204
6. Session, Stability, Flexibility and Efficiency in Contract Law, Market Mimicking Rules and the Cheapest Cost Avoider Principle, Literature: Ayres and Gertner, Filling Gaps in Incomplete Contracts (1989). Aksoy and Schäfer, Good Faith, Encyclopedia of Law and Economics (2015) Case: Standard Form Contract, (Werftbedingungen, BGH).
7. Session, The Economic Theory of Information and Pre-contractual Disclosure Rules, Case: selling at a too low price without knowing (Daktari, BGH).
8. Session, The Limited Company, its Virtues and Vices, Literature: Hansmann and Kraakman, The Essential Role of Organizational Law (2000) Case: The unpaid leasing contract bill, (Autokran, BGH).