Austrian economics identifies three reasons, any one of which invalidates antitrust as a mechanism for ensuring competition. The first is the political economy realization that antitrust cannot be administered without political cronyism, which will blunt its effectiveness. The second is the problem of knowledge; no antitrust judge or regulator can know all the relevant facts for rendering a decision that improves the operation of markets. Either of these is fatal to the arguments for antitrust. This chapter will focus on the third objection: antitrust is premised on a flawed, static model of competition. By not recognizing that competition is a dynamic process involving innovation, antitrust actually thwarts competition, achieving the opposite of its intended effect.
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Peter G. Klein and Thomas A. Lambert
This chapter applies Austrian insights relevant to analysis of American business law. Modern corporation and partnership law, perhaps surprisingly, largely coheres with an Austrian theory of the firm, although recent regulations affecting corporate conduct and securities offerings, enacted in the wake of financial scandals, undermine these principles. On the other hand, antitrust law operates under a static view of markets that is inconsistent with Austrian principles, although recent antitrust decisions have been more consistent. We set forth aspects of Austrian thought most relevant to an analysis of American business law. We have shown that this rich body of thought that has proven so useful in analyses of institutions (e.g., the Socialist Calculation debate) and monetary and fiscal policies (e.g., Austrian business cycle theory) has much to offer in the economic analysis of specific legal rules.
Michael E. DeBow
This chapter provides a history of the expanding domain of tort law in the United States, with a particular focus on the spread of the concept of strict liability and a consonant erosion of contractual liability in favor of torts. It then surveys differing Austrian viewpoints on the moral standard underlying torts, the merits of the common law, intentional and unintentional torts, and product liability. It concludes that Austrian scholars who are comfortable with the normative standard of “individual freedom from domination” should conduct research countering the case for the ever-growing expansion of tort law.
Todd J. Zywicki and Edward P. Stringham
Is the common law efficient? Neoclassical economists debate whether our inherited systems of judge-made law maximize wealth whereas Austrian economists typically adopt much different standards. The chapter reviews neoclassical and Austrian arguments about efficiency in the common law. After presenting Hayek’s views on the common law as a spontaneous order it concludes that the common law can indeed be viewed as a spontaneous order only when judges provide their services in a free and competitive system.
Todd J. Zywicki and Shruti Rajagopalan
In this chapter we provide an explanation for why the Chapter 11 reorganization process cannot accurately value and reorganize an insolvent firm. Due to the information and incentive vacuum of the reorganization process, Chapter 11 places the bankruptcy judge in the same institutional setting as a central planner. Therefore, the bankruptcy judge is given the impossible task of economic calculation without the relevant market data to calculate the same. Given the inability to make market allocations, Chapter 11 allocations are prone to rent-seeking and interest group capture.
Investigating and Prosecuting Across Borders
The cases of cross-border insider trading and market manipulation that have been pursued by securities regulators over the last 10 years fall within a number of broad categories. This chapter details some of the leading cases pursued by securities regulators in relation to each of these categories. In doing so, this reveals some of highly innovative ways in which securities regulators are detecting and investigating cross-border market abuse. It also demonstrates some of the significant challenges which securities regulators face going forward in their struggle to keep the markets free of market abuse.
Jeffrey S. Parker
The economic analysis of civil procedure can be enriched by a more thorough consideration of the productive functions of civil adjudication, in particular the production of new knowledge, as distinguished from the revelation or use of pre-existing knowledge. As adjudicative facts often involve the particulars of time and place, their production through litigation has some of the same properties noted by Hayek in the determination of prices by the market system. Most importantly, the determination of adjudicative facts may reflect investment decisions made both before and after litigation has arisen, and those decisions have consequences for productive activity. Therefore, decisions to invest in litigation are not merely “rent-seeking,” but also embody some element of innovation. They are analogous to other investments in new knowledge, such as research and development, or exploration for natural resources. Rules of civil adjudication can affect the supply and price of new knowledge, and thereby affect welfare, through their influence on the timing and nature of investments in new knowledge. The implications of these factors range across a variety of topics in civil procedure.
Peter T. Leeson
This chapter has two purposes. First, it considers what the components of an “Austrian” law and economics might consist of. I argue that Ronald Coase’s conception of law and economics precludes the economic analysis of legal institutions and, in particular, the beliefs that support them. In doing so, Coase’s conception precludes an Austrian law and economics. In contrast, Richard Posner’s conception of law and economics makes such analysis the core of its study. In doing so, Posner’s conception provides a productive foundation for an Austrian law and economics. Second, to illustrate what some aspects of an Austrian law and economics might look like in practice, I consider several examples of the economic analysis of beliefs of import for the law. I focus on objectively false beliefs, or superstitions, and argue that some such beliefs are socially productive.
Sahar Shamsi, Pantelis Solomon and Nicole Robins
In response to the financial and economic crisis, the European banking system received a significant amount of State funds, and allowed a wide range of rescue and restructuring measures to ensure financial stability. As State aid rules in the banking sector evolved to reflect the nature of the crisis, the policy towards compensatory measures, which are designed to limit any distortions to competition created as a result of the aid, has changed over time. This chapter considers the wide range of compensatory measures that have been introduced, how the approach to compensatory measures has changed over time and whether the measures have met their stated intentions.
Joanna Gray and Francesco de Cecco
This chapter explores the challenges presented by the interplay between State aid control and financial regulation. While, during the financial crisis, State aid law and policy demonstrated remarkable openness towards the conceptual toolkit of financial regulation, the uncertain contours of concepts such as systemic risk and moral hazard affected the degree of congruence between theory, policy and practice. What is more, the presence of multiple regulatory objectives tended to present the European Commission with some difficult trade-offs in attempting to pursue stability, the prevention of moral hazard and the preservation of lending to the real economy simultaneously, while attempting to minimize distortions of competition.