|
 Foreword: Free markets do not exist within a vacuum, but need a legal framework that protects property, enforces contracts and allows free exchange to flourish. This statement would tend to be accepted by most economists and, increasingly, forms the basis of meaningful discussions of development economics.
This type of statement also leaves many of the most important questions unanswered, however. What should this legal framework look like? What are its limits? What systems should we use for determining it? And, perhaps most importantly, who should determine it? After all, if freely transacting parties within a market are capable of designing contracts and even designing very detailed systems of private regulation, such as those that used to be found within stock exchanges before government regulation took over, then why cannot freely transacting parties design systems of law that are widely applicable?
In particular, those involved with development economics and issues of bad governance within poor countries would like urgent and simple answers to these questions. But there are no simple answers, and our understanding of many of these problems is cloudy. One especially important question stands out. Do legal frameworks evolve naturally within societies or can they be designed, at least in outline, and imposed from above? If it is possible to impose effective legal frameworks within which free exchange can take place, then perhaps we can solve problems of underdevelopment fairly rapidly: at least where there is an absence of war and conflict. Provisionally, however, it seems as if the evidence points to the conclusion that many aspects of effective legal frameworks have to be allowed to evolve within communities – a process that can take time.
In this excellent collection, put together by Stephen Copp, and containing chapters by many of the leading law and economics scholars in the world, many of the authors deal with subjects related to the questions posed above. In one of the early chapters, Peter Leeson asks quite simply whether free markets need government. The relative merits of common law versus codified law systems; the relationship between government law and natural law; whether concepts such as limited liability need to be defined by government law; and whether environmental protection requires state regulation or can be attained through private legal actions are then addressed in an engaging and straightforward style by the authors. ...
Philip Booth
Editorial and Programme Director, Institute of Economic Affairs
Professor of Insurance and Risk Management, Sir John Cass Business School, City University
July 2008
Visit The Legal Foundations of Free Markets Download Page
Click "download full publication", you can download the entire publciation in PDF format.
Edited by Stephen F. Copp
Copyright © The Institute of Economic Affairs 2008
isbn 978 0 255 36591 8
CONTENTS:
About the authors 9
Foreword 13
List of tables and figures 15
1 The legal foundations of free markets 19
Stephen F. Copp
Introduction 19
Do free markets need rules? 21
How can the rule-making process be made more consistent
with free markets? 24
What particular types of law contribute to free markets? 33
Conclusions 39
References 40
2 Do markets need government? 42
Peter T. Leeson
Introduction 42
Does the social dilemma imply the need for government? 43
Self-enforcing commercial law 46
Self-enforcing criminal law 52
Concluding remarks 61
References 62
3 Natural law, Scholasticism and free markets 65
Samuel Gregg
Introduction 65
What is natural law? 66
From Aristotle to Aquinas 69
The late Scholastics and the market 77
Conclusion 80
References 81
4 The common law and wealth 84
Cento Veljanovski
Introduction 84
A tale of two laws 85
Structure of the common law 88
Why would the common law be efficient? 91
Is the common law efficient? 95
Conclusions 98
References 99
5 E conomics and the design of regulatory law 104
Anthony Ogus
Introduction 104
Public interest analysis 105
Private interest analysis 108
Renewed public interest analysis 109
Behavioural law and economics 116
Conclusion 120
References 121
6 E conomic rights 127
Norman Barry
Introduction 127
Protection of economic rights in America 129
Common and civil law 134
The state and economic rights 135
Conclusion 138
References 139
7 Breach of contract and the efficiency of markets 140
David Campbell
Introduction 140
The structure of the law of remedies for breach of contract 141
The current criticism of the law of remedies 145
Why the law of remedies works the way it does;
or, why not prevent breach? 146
Choice over levels of precaution 149
Conclusion: the complexity of spontaneous order
and the morality of competition 154
References 156
8 Limited liability and freedom 158
Stephen F. Copp
Introduction 158
Limited liability was an integral characteristic of companies 161
Unlimited liability was impracticable to enforce 162
Contractual limited liability was unsatisfactory 164
Unlimited liability resulted in disproportionately high risk for
investors and a suboptimal level of investment 166
Unlimited liability resulted in disproportionately low risk for
creditors and led to an above-optimal level of credit being
allocated to unmeritorious business activities 169
Limited liability would remove disincentives to enterprise,
working-class investment and diversification 171
Limited liability was irrelevant to the incidence of
incompetence/fraud 173
A right to limited liability would discourage the loss of
company formations to more competitive jurisdictions 174
A right to limited liability would avoid the delay,
inconsistencies and costs associated with discretionary
government control and the influence of vested interests 176
Statutory limited liability was not inconsistent with free trade
and freedom of contract 181
Experimenting with limited liability was desirable to ascertain
the most effective rule 183
... but concessions were necessary over size and
solvency regulation 185
Conclusions 186
References 188
9 U nilateral practices and the dominant firm: the
European Community and the United States 191
Richard A. Epstein
The two faces of competition policy 191
The rule of law 195
Fairness – or efficiency? 197
The official ambivalence within the EC 201
A tale of two statutes 211
References 222
Appendix 223
10 Private versus public regulation of
the environment 228
Julian Morris
Introduction 228
The theory of environmental policy 228
Environmental policy in practice 231
Problems with the theory of environmental policy 236
Private regulation of the environment 239
Nuisance law as a means of preventing industrial pollution 245
Using contracts to improve environmental amenities 248
Private versus public regulation of the environment 249
Possible reforms 251
References 253
About the IEA 256
ABOUT THE AUTHORS:
Norman Barry
Norman Barry is Professor of Social and Political Theory at the University of Buckingham. His research interests include analytical political philosophy, welfare theory and business ethics. His books include Hayek’s Social and Economic Philosophy; On Classical Liberalism and Libertarianism; The New Right; and Welfare and Business Ethics. He has been a Visiting Scholar at the Social Philosophy and Policy Center, Bowling Green State University, Ohio, and the Liberty Fund, Indianapolis. He is a member of the Academic Advisory Councils of the Institute of Economic Affairs and the David Hume Institute (Edinburgh).
David Campbell
David Campbell is a professor in Durham Law School at Durham University. He was educated at Cardiff University (BSc, 1980), the University of Michigan (LLM, 1985) and the University of Edinburgh (PhD, 1985). He is a Fellow of the Chartered Institute of Arbitrators. Since 1985, he has taught at a number of British universities and in Australia, Hong Kong, New Zealand, Spain and the United States. Professor Campbell has written on a wide range of legal and social scientific issues. He is currently working on a book refining Fuller’s model of contractual interests and another on Coase’s critique of intervention.
Stephen F. Copp
Stephen Copp gained his LLB (Hons) from Exeter University in 1982. He holds the dual qualifications of solicitor and barrister, having been called to the bar in 1985 and admitted as a solicitor in 1989; in 1994 he was made an Honorary Fellow of the Institute of Indirect Taxation. In 2004 he completed his PhD on ‘The early development of company law in England and Wales: values and efficiency’. He is currently an academic, based at Bournemouth University, and does not practise. Dr Copp speaks and publishes widely on company law and corporate governance.
Richard Epstein
Richard A. Epstein is the James Parker Hall Distinguished Service Professor of Law at the University of Chicago, where he has taught since 1972. He is also the Peter and Kirstin Senior Fellow at the Hoover Institution (since 2000), a visiting professor of law at New York University Law School (since 2007), and a director of the John M. Olin Program in Law and Economics. He has also served as editor of the Journal of Legal Studies (1981–91), and editor of the Journal of Law and Economics (1991–2001). Professor Epstein is the author of numerous books and articles on a wide range of legal and interdisciplinary subjects.
Samuel Gregg
Samuel Gregg has an MA in political philosophy from the University of Melbourne, and a D.Phil in moral philosophy from the University of Oxford, where he worked under the supervision of Professor John Finnis. He is the author of several books, including his prize-winning The Commercial Society (2007), and a regular writer of newspaper opinion pieces. He is Director of Research at the Acton Institute, an Adjunct Professor at the Pontifical Lateran University, a Fellow of the Royal Historical Society and a member of the Royal Economic Society.
Peter T. Leeson
Peter T. Leeson is BB &T Professor for the Study of Capitalism at George Mason University. Previously he was a Visiting Fellow at Harvard University and the F. A. Hayek Fellow at the London School of Economics. He has been an Adjunct Scholar of the Mackinac Center for Public Policy since 1997, and has served as an Associate Editor of the Review of Austrian Economics since 2005. In 2007 he received the Fund for the Study of Spontaneous Orders Prize for his research on anarchy and the Olive W. Garvey Prize for his paper, ‘Escaping poverty: foreign aid, private property, and economic development’.
Julian Morris
Julian Morris is Executive Director of International Policy Network, a London-based think tank that works on global policy issues relating to health, environment, trade and development. He is also a Visiting Professor at the University of Buckingham. Professor Morris holds degrees in law and economics and has published widely on matters relating to the environment, health, technology and development. Prior to founding International Policy Network in 2001, he was director of the Environment and Technology Programme at the Institute of Economic Affairs.
Anthony Ogus
Anthony Ogus is Professor of Law at the University of Manchester and Research Professor at the University of Maastricht. He has held visiting posts at a number of European and North American universities. Since the late 1970s Professor Ogus has specialised in the economic analysis of law, having been one of the first European legal scholars to work in this field. He is currently a member and vice-chairman of the Social Security Advisory Committee, and for this work he was awarded a CBE in 2002. In July 2007, he was elected a Fellow of the British Academy.
Cento Veljanovski
Dr Cento Veljanovski is Managing Partner of Case Associates, an IEA Fellow in Law and Economics, and an Associate Research Fellow at the Institute of Advanced Legal Studies, University of London. He was previously Research and Editorial Director at the Institute of Economic Affairs (1989–91), Lecturer in Law and Economics, University College, London (1984–87), Research Fellow, Centre for Socio-Legal Studies, Oxford (1974–84), and has held academic positions at UK, North American and Australian universities. Dr Veljanovski was the first economist appointed to a lectureship in a law department at a British university. He has written many books and articles on industrial economics, economic reform, and law and economics.
 |
eBook Categories 
Subscribe to the RSS feed.