Modern Law and Economics dates from 1960s, with the publication of Ronald Coase The Problem of Social Cost, followed by, among other authors, Gary Becker’s 1968 paper on crime, and Richard Posner in 1972 and the positive theory of efficiency. Law and Economics allows the study of the response of institutions, firms and individuals to laws with the use of scientific economic theories. The interaction of these disciplines is used to promote more efficient government decisions by balancing market failures and efficiency gains in each economy.
In particular, Public Law and Economics studies the use of economic principles for the analysis of the interaction between the state and individuals, in their different dimensions. Laws are considered as correctives to perceived deficiencies in the operation of the market and; at the same time, in accordance with the public interest theory, the design of these laws or regulations is considered to have the intent to pursue collective goals. In some countries, their more important goals can be to increase social welfare, promote market competition and consumer protection.
The use of economic theories for the analysis of public law is particularly important in a globalized context, and could be even more relevant in the post-economic crisis era where new forms of market organization, uncertainties of the digital economy, and new scenarios of abuse of economic power have emerged. In other words, mainly after the 2007-2008 financial crisis, more state intervention, in the form of supervision or regulation was called for. This has resulted in amended regulations and new controls for regulated markets, changes in institutions, further regulatory assessment, and higher pressure on regulatory governance and its role for disciplining and holding the government accountable for its actions.
Furthermore, in the past decade, companies aimed to compete and/or cooperate with each other in a world where technologies are changing rapidly, digital economies have emerged, and markets are global in scope. Also, they have gradually tried to recover from the impact of the economic crisis in a scenario of high economic uncertainty and financial turbulence. At the same time, governments, sector regulators, competition authorities, and central banks have been working on policies and reforms to minimize the impact of the crisis on the economy, to stabilize the financial system, and to introduce and amend the regulations and institutions necessary to ensure that the crisis does not repeat itself.
To identify, evaluate, and prioritize further specific policies and reforms, one challenge is identifying the tools that can be used by each government. This is because countries differ in many dimensions and the suggestion for reforms certainly differ among them. If we take as an example competition policies, it can be argued that developing countries have inferior levels of competition than developed countries, mainly when comparing the existence and enforcement of competition law, barriers to competition, trade and foreign investment policies. Actually, in developing countries, there are major forces in keeping markets closed and uncompetitive: markets are usually restricted by business practices that undermine competitive dynamics, and by government actions that create barriers to healthy competition. Fox (2012) describes that anticompetitive practices tend to be more severe in societies “long dominated by state-owned firms, in which capital markets work poorly, barriers to entry are high, problems of capture are great, and social ties breed collusion and discourage detection”. Therefore, some issues raised by market dynamics in those developing countries have different approach in terms of public policies.
Aside from the extended discussions of the regulatory responses to the global crisis, another important topic that upsurges as a challenge to regulators is the fast developments in the digital economy. Digital economies are characterized by aspects such as the existence of network effects that might promote market concentration and the existence of multiple service providers available for delivering digital services to end users. The latter can make the market contestable, meaning that market power can be challenged by entrants easier and often faster than in more traditional fields of the economy. The combination of network effects and contestability gives the sector dynamics that are fundamentally different from other sectors, and therefore the digital economy appears to be challenging to policy frameworks, including competition policy, but also policies regarding consumer protection, privacy, taxation, and intellectual property rights.
Considering all the above, the next WEA Conference aims to bring together renowned specialists in economic regulation, regulated sectors and competition law to debate those relevant issues. This discussions will enable academics and practitioners to: (i) discuss how sector regulators and competition authorities are interacting post-crisis and how the economic analysis of law can aid countries reach better regulation and competition policies; (ii) contribute with practical and theoretical references on the limits of economic power and forms of state intervention; (iii) deal with the uncertainties and challenges of the digital economy; (iv) gather relevant case studies on each area of study and; (v) identify new trends in Law and Economics that have arisen post-crisis.
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- Fox, E. Competition, Development and Regional Integration: In Search of a Competition Law Fit for Developing Countries, 2012, p. 10. Avalilable at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1761619
- Directorate-General for Internal Policies. Challenges for Competition Policy in Digitalized Economy, 2015. Available at: http://www.europarl.europa.eu/RegData/etudes/STUD/2015/542235/IPOL_STU(2015)542235_EN.pdf