Kristoffel Grechenig

History of Law and Economics

The roots of law & economics lie in late 19th century continental Europe. However, this early movement did not persist, having been cut off in the 1930s. After World War II, modern law & economics was (re-)invented in the United States and subsequently grew into a major field of research at U.S. law schools. In continental Europe, law & economics was re-imported as a discipline within economics, driven by economists interested in legal issues rather than by legal scholars. Hence, the European discourse was more strongly influenced by formal analysis, using mathematical models. Today, research in the U.S., Europe, and in other countries around the world, including Latin America and Asia, uses formal, empirical, and intuitive methods. New subfields, such as behavioral law & economics and experimental law & economics, have grown in the U.S. and in Europe during the past two decades.

The State's Enforcement Monopoly and the Private Protection of Property

The modern state has monopolized the legitimate use of force. This concept is twofold. First, the state is empowered with enforcement rights; second, the rights of the individuals are restricted. In a simple model of property rights with appropriation and defense activity, we show that a restriction of private enforcement is beneficial for the property owner, even if there are no economies of scale from public protection. We emphasize the role of the state as a commitment device for a certain level of enforcement. However, commitment will only work if the state can regulate private protection, such as private armies and mercenaries.

No Derivative Shareholder Suits in Europe - A Model of Percentage Limits, Collusion and Residual Owners

We address one of the cardinal puzzles of European corporate law: the lack of derivate shareholder suits. In the vast majority of European jurisdictions, shareholders can bring a derivative action (for damages) against the management for breach of fiduciary duty. In all of these countries, a derivative lawsuit is the only remedy against managerial misconduct. In spite of corporate fraud by managers there are no such lawsuits. We explain this apparent paradox on the basis of percentage limits. The laws of percentage limits require shareholders to hold a minimum amount of typically 5% to 10% in order to bring an action against the management and they are extremely wide-spread in Europe. Since small shareholders are not entitled to sue, there is an incentive for managers to collude with large shareholders. In a four-stage-model, we show that, given the current percentage limits, managers will misappropriate corporate assets and split the proceeds with large shareholders. Contrary to current and past approaches to agency theory, we find that, in this equilibrium, (1) large shareholders do not monitor the management, (2) small shareholders do not free ride and (3) the residual ownership is not held by the shareholders on the whole but by the managers and the large shareholders. This interpretation of the current situation is consistent with empirical studies that find a more concentrated shareholder structure in Europe than in the United States. Also published as: Columbia Law and Economics Working Paper No. 312 (http://www.law.columbia.edu/center_program/law_economics/wp_listing_1/) German Working Papers in Law and Economics: Vol. 2007: Article 2. (http://www.bepress.com/gwp/default/vol2007/iss2/art2) SSRN (http://ssrn.com/abstract=933105)

Monopolizing Sanctioning Power under Noise Eliminates Perverse Punishment But Does Not Increase Cooperation

We run several experiments which allow us to compare cooperation under perfect and imperfect information in a centralized and decentralized punishment regime. Under perfect and extremely noisy information, aggregate behavior does not differ between institutions. Under intermediate noise, punishment escalates in the decentralized peer-to-peer punishment regime which badly affects efficiency while sustaining cooperation for longer. Only decentralized punishment is often directed at cooperators (perverse punishment). We report several, sometimes subtle, differences in punishment behavior, and how contributions react.

Cooperation under Punishment: Imperfect Information Destroys it and Centralizing Punishment Does Not Help

We run several experiments which allow us to compare cooperation under perfect and imperfect information and under a centralized and decentralized punishment regime. We nd that (1) centralization by itself does not improve cooperation and welfare compared to an informal, peer-to-peer punishment regime and (2) centralized punishment is equally sensitive to noise as decentralized punishment, that is, it leads to signi cantly lower cooperation and welfare (total pro ts). Our results shed critical light on the widespread conjecture that the centralization of punishment institutions is welfare increasing in itself.

Divergente Evolution des Rechtsdenkens - Von amerikanischer Rechtsökonomie und deutscher Dogmatik

German Abstract: Die Arbeiten von Juristen und Wirtschaftswissenschaftlern haben zu allen Zeiten Verbindungslinien zueinander aufgewiesen. Seit den 1960er Jahren ist in den Vereinigten Staaten jedoch eine Law-and-economics-Bewegung entstanden, die breite Bedeutung an amerikanischen Rechtsfakultaten erlangt hat. Auf den nicht rechtsvergleichend arbeitenden deutschsprachigen Beobachter wirken Aufsatze in amerikanischen Rechtszeitschriften mitunter befremdend. Dies beruht nicht allein auf den unterschiedlichen klassischen Rechtstraditionen (common law bzw. civil law), sondern vor allem auf der interdisziplinaren Ausrichtung der Beitrage. Wahrend sich im deutschsprachigen Raum die Rechtsdogmatik in erster Linie mit der systemimmanenten Weiterentwicklung des Rechts befasst, gehen amerikanische Rechtslehrer fast immer von einem externen Blickwinkel aus. Insbesondere wird das geltende Recht auch von Juristen an externen Masstaben, etwa okonomischen Effizienzkriterien, gemessen. In dieser rein funktionalen Betrachtung unterscheidet sich die US-amerikanische Rechtslehre wesentlich von der europaischer Staaten einschlieslich Grosbritanniens. Diese Arbeit versucht eine Erklarung fur diese Divergenz im Rechtsdiskurs und betont zu diesem Zweck in der bisherigen rechtsvergleichenden Diskussion unberucksichtigte bzw. vernachlassigte Faktoren, wobei als die zwei zentralen Faktoren der amerikanische Rechtsrealismus sowie der Utilitarismus identifiziert werden.English Abstract: Law and Economics has become an integral part of U. S. scholarship, while its role remains comparatively limited in the German-speaking legal debate. We propose a two-pronged explanation for this divergence of legal thought which rests on the rise and fall of legal realism and the rejection of utilitarian ethics. Until the late 19th century, the interpretative methodology of the respective legal systems showed remarkable parallels. Both the Langdellian approach as well as German conceptual jurisprudence focused on an internal perspective of the law and excluded external elements from »legal science«. This approach was attacked by both the Free law school and its American counterpart, legal realism, during the early decades of the Twentieth Century. Scholars essentially argued that the law was indeterminate to some extent and that the use of traditional legal methods disguised the true reasons for a particular interpretation of the law, e.g. in the form of a judicial decision. Both schools emphasized that decisions were inevitably based on policy considerations at least to some extent. Legal realism transformed American legal thought into a discourse focusing on policy and the consequences of the law in which extra-legal considerations, including economic analysis, take a predominant position. By contrast, German legal theory focused on the development of interpretative methods and emphasized the internal coherence of the legal system. Policy remained largely excluded from scholarly analysis. Differences in the philosophical roots can explain why law and economics prevailed over other theories that intended to fi ll the void torn open by legal realism and why it today takes such a prominent position in U. S. legal academia. The widespread acceptance of utilitarianism in American academic circles provided a fertile groundwork for welfarist, consequentialist approaches such as law and economics. Insofar as external criteria are accepted in the German legal discourse, they are mostly non-utilitarian. We argue that both legal realism and utilitarianism were necessary for the development of a legal discipline strongly characterized by law and economics scholarship, as we see it in the U. S. today.

Discriminating Shareholders through the Exclusion of Pre-Emption Rights? The European Infringement Proceeding against Spain (C-338/06)

Abstract This article addresses a European infringement proceeding against Spain, which was joined by other Member States in 2007, including Finland, the United Kingdom and Poland. The European Commission alleges a violation of the Second Company Law Directive through a discrimination of shareholders. It argues that Spanish companies are allowed to issue shares below the market value and exclude the pre-emption rights of the existing shareholders. Such share issues result in a wealth transfer from old to new shareholders (often referred to as a “dilution” of shareholdings), contrary to the equal treatment clause of the Second Directive. This article shows that the dispute is partly due to a misunderstanding of Spanish law, including legal culture. It also finds that the allegations have merit to some extent but crucially depend on the fact finding of the European Court of Justice.

Schadensersatz bei Verletzung von § 14 WpHG? – Insiderhandel bei positiver und negativer Information

Der Beitrag untersucht eine schadensersatzrechtliche Differenzierung von Insiderhandel aufgrund positiver und Insiderhandel aufgrund negativer Information. Ein Handel mit positiver Information stellt typischerweise eine bervorteilung der brigen Aktion re dar, womit der individualsch tzende Charakter stark in den Vordergrund r ckt und ein Anspruch zu bejahen ist. Bei negativer Information hat die Transaktion des Insiders dagegen oft positive Auswirkungen, die darin liegen, dass verschleierte Information ber den Preis an den Markt transportiert wird. Die Teleologie dieser Differenzierung spricht ferner f r eine ber die schadensersatzrechtliche Frage hinausgehende einschr nkende Auslegung von § 14 WpHG.

The Status of the Law on Stock Companies in Central and Eastern-Europe: Facing the Challenge to Enter the European Union and Implement European Company Law

Most of the countries that are candidates for EU membership are from Central and Eastern Europe. Although their company laws are generally rooted in the Western (and Central) European legal tradition, the influence of Communism has also left a mark on their corporate law regimes. These regimes have recently undergone major changes, and the European Commission has declared that they are now largely in conformity with EU standards. As to rules concerning corporate governance in stock companies, European company law still leaves ample scope for national particularities. Central and Eastern European laws concerning stock companies allow for a great variety of different organisational structures, including pure two-tier systems, mixed systems and systems that provide a choice between one-tier and two-tier systems.

The Societas Europaea in Relation to the Public Corporation of Five Member States (France, Italy, Netherlands, Spain, Austria)

In consideration of the corporate governance discussion and the discussion of the stock corporation act’s deregulation and the diminution of mandatory law, one can see that the economy requires different models and legal solutions for different situations. In this regard, it would be reasonable to provide as a basic model the existing system, which is already established in the individual Member States, and provide the alternative model only for special purposes and on several conditions. The Societas Europaea (SE) can be an important driving force to advance corporate law all over Europe.