Economic Theories on Jurisdiction - Dictionary of Arguments
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Jurisdiction/Economic theories/Wangenheim: (…) the law-and-economics discussion on competing jurisdictions relies to a substantial degree on the very evolutionary concept of competition as a discovery process (Hayek, 1949)(1) for better law. Jurisdictions invent new legal rules and jurisdictions imitate the legal rules of other jurisdictions (Mattei and Pulitini, 1991(2); Ogus, 1999(3); van den Bergh, 2000(4)).
Tiebout: Tiebout (1956)(5) was the first to describe the interaction between jurisdictions - local communities in his case - as a competitive process, which will eventually entail separation of individuals into various communities according to their differential preferences and certain rather restrictive conditions, in particular concerning the mobility of individuals and the absence of externalities.
Buchanan: The idea has been formalized in Buchanan's (1965)(6) theory of clubs. In these early approaches, competition between communities or clubs (governed or owned by entrepreneurs) takes place solely by movement of individuals from one community or club to another.
Hirschman: Hirschman (1970)(7) extended the argument to allow for "voice" as a second mode of influencing the governor's or owner's decisions.
Legal rules: While early writings in the field saw the mission of communities in the provision of public goods in general, the content of legal rules became a subject of investigation in the course of refinements of the argument.
Oates and Schwab (1988)(8) were the first to combine fiscal federalism with regulatory rules in a formal model.
Frey and Eichenberger (1996)(9) argued that most public goods need not be supplied and financed by regional polities but also "functional overlapping competing jurisdictions (FOCJ)" could fulfill the task.
With these extensions, competition between jurisdictions may refer to legal rules and may be driven both by individuals relocating from one jurisdiction to another and by politicians competing for votes from voters in the jurisdiction who compare the policy of their own jurisdiction to that of others (yardstick competition).
Obviously, this is a difference between competition between jurisdictions and competition between firms producing private goods, which should not be neglected.
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Equilibrium: Much of the literature interested in the equilibrium of inter-jurisdictional competition refers to specific legal fields and asks whether competition in the various fields leads to efficient or inefficient equilibria—in other words, whether there is a race to the top or a race to the bottom. Most of the prominent fields of law discussed in this realm are corporate law (e.g. Easterbrook and Fischel, 1996(10); Romano, 2005(11); Romano, 2017), including securities law (Ribstein, 2005(12); Choi and Guzman, 1998(13)) and regulation (Oates and Schwab, 1988)(8), in particular European regulation and its harmonization (e.g. Ogus, 1999(3); van den Bergh, 2000)(4).
Path-dependence: Carbonara and Parisi (2009)(14) show that under certain conditions - suffciently liberal choice-of-law rules and governments that are benevolent towards their constituencies - multiple equilibria of the legal evolution emerge and hence a strong path dependency.
1. Hayek, F. A. v. (1949). Individualism, and Economic Order. Chicago: University of Chicago
2. Mattei, U. and F. Pulitini (1991). "A Competitive Model of Legal Rules," in A. Breton, G. Galeotti, P. Salmon, and R. Wintrobe, eds., The Competitive State: Villa Colombella Papers on Competitive Politics, 207-219. Dordrecht: Kluwer.
3. Ogus, A. (1999). "Competition between National Legal Systems: A Contribution of Economic Analysis to Comparative Law." International and Comparative Law Quarterly 48: 405-418.
4. van den Bergh, R. (2000). "Towards an Institutional Legal Framework for Regulatory Competition in Europe." Kyklos 53: 435-466.
5. Tiebout, C. M. (1956). "A Pure Theory of Local Expenditures." Journal of Political Economy
6. Buchanan, J. (1965) "An Economic Theory of Clubs." Economica 32: 1-14.
7. Hirschman, A. O. (1970). Exit, Voice and Loyalty. Cambridge, MA: Cambridge University
8. Oates, W. E. and R. M. Schwab (1988). "Economic Competition Among Jurisdictions: Efficiency Enhancing or Distortion Inducing?" Journal of Public Economics 3 5: 333-354.
9. Frey, B. S. and R. Eichenberger (1996). "FOCJ: Competitive Governments for Europe." International Review of Law and Economics 16: 315-327.
10. Easterbrook, F. H. and D. R. Fischel (1996). The Economic Structure of Corporate Law. Cambridge: Cambridge University Press.
11. Romano, R. (2005). "Is Regulatory Competition a Problem or Irrelevant for Corporate Governance?" Oxford Review of Economic Policy 21: 212-231.
12. Ribstein, L. E. (2005). "Cross-Listing and Regulatory Competition." Review of Law and Economics 1:97-148.
13. Choi, S. and A. Guzman (1998). "Portable Reciprocity: Rethinking the International Reach of Securities Regulation." Southern California Law Review 71:903.
14. Carbonara, E. and F. Parisi (2009). "Choice of Law and Legal Evolution: Rethinking the Market for Legal Rules." Public Choice 139:461-492.
Wangenheim, Georg von. „Evolutionary Law and Economics.” In: Parisi, Francesco (ed) (2017). The Oxford Handbook of Law and Economics. Vol 1: Methodology and Concepts. NY: Oxford University Press_____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Author1]Vs[Author2] or [Author]Vs[term] is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition.
Francesco Parisi (Ed)
The Oxford Handbook of Law and Economics: Volume 1: Methodology and Concepts New York 2017