Law as a Market Standard: Voluntary Unification in Contract and Company Law

Abstract

It is a common perception that differences in private laws impede cross-border business activity. The goal of enhancing economic integration, both regionally and globally, often animates legislative advances towards harmonizing or unifying legal rules across jurisdictions. This chapter invokes the economic theory of standards competition or “network effects” as a framework to evaluate the promise of voluntary law unification. It highlights that standardization need not be the responsibility of lawmakers. With free choice of law, markets themselves produce their own degrees and patterns of standardization. The paper makes several predictions about the scope of market standardization in two particularly important areas, contract law and company law; it also adduces some empirical evidence. One policy implication is that international standardization does not depend on crafting uniform law. The laws of national jurisdictions can also be suitable as market standards for cross-border transactions. This adds a new perspective to the continuing debate about regulatory competition between jurisdictions: The winners of the race are decided as much by network effects as by differences in the substantive quality of their laws. Better law standardization can be a desirable outcome of jurisdictional competition. Andreas Engert Freie Universität Berlin, Department of Law Vant-Hoff-Straße 8 14195 Berlin, Germany e-mail: andreas.engert@fu-berlin.de