Thank you very much for this warm welcome, which is always very nice because you feel
welcome, but which is always also very dangerous because somehow the load on your shoulders
gets even heavier.
But it's a great privilege to be here, and I had the chance to talk to some of the speakers
of this lecture series, and they have all been very enthusiastic and have told me about
the nice discussions they had and the nice atmosphere here.
And so I'm really looking forward to this evening.
After we had fixed the date, however, I was a bit shocked because I realized only afterwards
that it was during the World Championships, but somehow Patrick has a good connection
to South Africa, obviously, and he managed that football is not being played while this
lecture, but was finished a bit before the lecture and will start afterwards.
So I better get started because otherwise you will miss the France against Mexico game.
I am going to talk about legal innovation in European contract law today, and I will
do so in three steps, two small steps, and one third, a bit larger step, which will take
about half of my lecture time.
First, I will explain the concept and the idea of legal innovation.
I will try to explain what innovation is and also what legal innovation is, or what I understand
by legal innovation.
Then I will talk very shortly about legal innovation and national contract law, explain
why default rules can be understood as a mechanism of legal innovation.
And then I will talk a bit more extensively about legal innovation in European contract
law, because Patrick has asked me that it would be good if I would talk about something
European, and it is a great pleasure to do so, especially because it reminds me of a
research project that I did when I was in Florence for a year.
The paper has been sent around and has just been published in a book that is called European
Private Law After the Common Frame of Reference, and the sun is as nice as it is in Hamburg.
It also reminds me of this project that I have conducted in Italy, so that is somehow
based on this more general idea of legal innovation in contract law and goes a bit into the recent
developments at the European level.
First, what is legal innovation?
To understand that, we have to think about the word innovation first.
Every discussion about innovation must probably start with Joseph Schumpeter, an economist
at the turn of the last century, and he has been called a prophet of innovation.
That is the title of one, Biography.
He was a very multifaceted personality.
He was not only a scholar, but also a ministry of finance in Austria, and also a person who
enjoyed life very much.
But he also enjoyed thinking about innovation, and his research focused mainly on the interaction
between competition, innovation, and economic growth.
His basic idea or his basic concept was that the innovative entrepreneur is the key factor
for economic growth and for progress.
He really put this person in the center of his research.
One of his basic concepts was a word that is hard to translate into English, the spirit
that really fosters innovation.
His definition of innovation is, however, not very telling.
He defines innovation as the doing of new things or the doing of things that are already
done in a new way.
What is basically this definition saying is that innovation has to do something that it's
new.
That is an interesting aspect, but it's not really a surprise.
Another definition sounds equally trivial, but it's perhaps a bit more telling.
It's a definition that I found in a much more recent book, The Truth About Innovation, very
popular science-oriented book.
Also the wording is very colloquial, innovation rocks, it rolls, makes the world go round.
Innovation is new stuff that is made useful.
That's just about the best definition.
Well, we can argue about the question whether that's really the best definition, but it
tells us two additional things as compared to the definition of Schumpeter.
It tells us, on the one hand, that innovation has to do something with an advance as compared
to the present status.
It is new stuff that is made useful.
Innovation must be useful for some purpose.
It's not only that there's some kind of intellectual advance, but it's also the fact that innovation
has a practical impact.
The importance of implementation of innovations is contained in this definition.
It's new stuff that is made useful.
Innovation is not just a new idea, but it's a useful new idea.
It's something that can be made use of.
As simple as this may sound, it's the basis for a very widespread research topic that
is called innovation theory.
That is not only a business and economic discipline, but that is widespread among many different
disciplines.
I wanted to show, even if you can't really see it now with the sun shining, but I wanted
to show you some of the major works in innovation theory.
The first one on top is a book called The Source of Innovation, written by Eric Von Hippel,
a research scholar at the MIT.
This idea is somehow opposed to the idea of Schumpeter, because Eric Von Hippel places
the consumer, the end user as he calls it, in the middle of his innovation theory.
He argues that the one who can really best appreciate what is needed and who can really
appreciate what is useful in future and who can be creative is the end user.
Therefore, firms should take into account the experiences of consumers, for example.
It's not the entrepreneur, it's not the Unterneamergeist that plays the major role, but it's rather
the consumer, the end user that is in the middle of his innovation theory.
The second book is the research that is called the Minnesota Papers.
That has been a very large empirical research project.
They had like 24 or 25 research teams sent to business enterprises in order to look at
how enterprises innovate in real life.
What they found out is, in part, very much enterprise specific, but they also found out
some interesting findings about innovation processes that can be really generalized.
The third book is a book called Managing Innovation by John Besant, a British scholar who used
to be a chemical engineer, just to illustrate how broad the disciplines are that are contributing
to innovation theory.
He really looks very closely at the tools and techniques that can be used to make organizations
more innovative than before.
It's a very broad mixture of ideas, but I wanted to underline maybe three or four points
of innovation theory that seem important to me and that will be important in the latter
part of my lecture.
One is the distinction between invention and innovation.
That's a distinction that's already laid down in the definition that I gave you.
Innovation is just the idea that is not only in one spirit, but that is somehow made manifest.
Innovation goes further because it's an idea applied successfully in practice.
The second important point is that innovation does not only look at specific innovations,
but at the process that fosters innovation, how do ideas originate, how are they made
manifest, and how are they implemented in practice?
How can this process be improved?
How can new ideas be inspired by, for example, taking the ideas of end users into account
or by asking your employees?
The focus is really on the process and the aim is to improve this process.
Third point goes somehow together with this process-oriented view.
Innovation theory is concerned with a system within which the process of innovation unfolds.
I already mentioned that these basic features characterize innovation theory in a wide variety
of fields from economics, business, to design, technology, sociology, and engineering.
The question is, why does innovation theory not play an important role in legal research
in law and economics?
I think there is an explanation to that, and there's also some good reason for that, but
maybe not always convincing.
The explanation is expressed in that little cartoon that you may not be able to see, but
I read the essential point.
I'll be happy to give you innovative thinking.
What are the guidelines?
That's a contradiction in itself somehow.
It shows that the orientation to very fixed and stable rules is somehow contradictory
to innovative thinking.
Innovation somehow goes together with thinking across borders and thinking not along very
traditional rules, but somehow go beyond that.
When I just said that innovation theory does not play any role in legal research, that
was a bit wrong, because not far from here, by coincidence, there's the only research
institute in Germany that I know that is concerned with innovation and law.
It's called CERI, Center of Research in Law and Innovation, even though I don't understand
how the abbreviation comes out of that, but it's called Center of Research on Law and
Innovation.
It's a center that is very much driven by public lawyers.
Maybe the most prominent figure is Wolfgang Hofmann Riem, a very well-known public lawyer
who used to be at the Constitutional Court, but also used to play a role here in Hamburg
local politics.
The mission of this research institution is, as its website says, to explore the interaction
of legal control systems and technical, economic, and social processes of innovation.
If you think about this mission statement, it means that what they are really interested
in is innovations in practice, technical, economic, social innovations, and legal rules
regulating these innovations, so regulating the risks that arise, for example, out of
new chemical processes or new nuclear innovations, things like that, of course.
That is very important.
It's regulating innovation rather than innovating legal rules.
They are concerned about legal rules about innovation, but not with innovation of legal
rules.
My proposition would be that innovation theory can also play an important role in this second
respect, because legal rules are also kind of social knowledge, also kind of intellectual
advance, and the change of legal rules, making legal rules better, also requires some kind
of innovation.
However, I, of course, admit that the cartoon that I just showed you has some truth in it,
and that there is some kind of contradiction between law and innovation.
Because legal rules need to be stable to a certain extent.
They need to be fixed, and the change of legal rules contradicts, for example, with the basic
principle of legal certainty, which has been called in a recent monography, a leading idea
of law.
Legal certainty is something that is hard to combine with innovation, but not only from
a legal point of view, but also in institutional economics, for instance, rules are often understood
as something that is stable, that is fixed, that is the framework for the discovery procedure
of economic processes that are run within this stable, fixed framework.
The contradiction might also be expressed in the words of Hayek, human intent is designing
this rule order, whereas spontaneous order innovation is taking place within this framework.
This stability of legal rules is also basically the idea behind the codification projects
since Napoleon, maybe even older, but the idea of these codifications was always that
they are designed to be somehow stable for a quite long period of time.
However, at least in legal research, there is an increasing interest in legal change.
Legal change, of course, arises even within these codifications.
There have always been some kind of law reforms.
And legal scholars have started to think about this change of institutions, not only legal scholars,
also institutional economists.
But I just cited some of the most important work that has been done here.
One of the earliest scholars was a well-known comparative lawyer, Alan Watson,
with his book on society and legal change.
So he was interested in legal change, but he was not so much interested in legal innovation,
because his basic idea was that most legal change arises out of borrowing from other systems.
So it's rather a question of adoption, of imitation, not so much inventing something new.
Then, in 1999, there has been an interesting monograph by an economist, Stefan Okloch,
who wrote about the innovation and diffusion of norms, focusing mainly on interpretation of norms,
but nonetheless, he was one of the first who really spoke about innovation in the context
of norms and of legal norms.
But then, for the last five years or so, there has really been
much more interest mainly in the US, and there have been quite a few articles
published which all have the wording legal innovation in their title.
I cited, for example, Katarina Pistor, who wrote with some other authors about innovation
in corporate law, Roberta Romano in 2006, titled The States as Laboratory, Legal Innovation and
State Competition for Corporate Charters, John Duffy, Inventing Innovation, a case study for
legal innovation, and then, in 2008, Thomas Uhlmann and Nuno Garupa, the Market for Legal Innovation.
Slowly, the interest in legal innovation is also growing in Germany, for example, in the
first trip for Kasten Schmidt. Hölger Fleischer published an article that was called
Jurestische Entekungen im Giesergerprecht, Legal Discoveries in Company Law.
He referred to an earlier contribution that has been written by Döhler in the 50s and was
concerned with legal discoveries. But the interesting thing is that Fleischer,
not in the title, but in the text, argues very much about innovation. What is innovation? What
is the difference between discovering something and innovating something? And he thinks that
the idea of innovating is an important concept and an important
research focus, at least in company law. And then, a name that you already know,
Peter Kalis and Pierre Zumbansen, are just about to publish a book on law, economics,
and evolutionary theory. It's going to come out, I think, in September or October this year, so
I didn't have a chance to look at it yet. But there are some working papers,
and their introduction has already appeared on SSRN. So it seems to me that it's not so much the
aspect of innovation but of evolution that is their main focus. But nonetheless,
the direction is quite similar.
Now, that shows an increasing interest in legal scholarship. But it doesn't tell us anything yet
about the importance of legal innovation in reality. Is it really important for legal systems
that they are able to innovate? In that respect, I found an interesting proposition in the paper
of 2003 of Katharina Pisto, and they start with a proposition that is later somehow...
Well, it's not really their proposition, but their starting point, that the capacity of
legal systems to innovate is more important than the level of protection a legal system
may afford. Now, that is a very strong proposition. It's a very strong proposition
because it underestimates fundamental values like legal certainty, fairness, social justice,
values that play a very important role in many areas of law. But nonetheless,
it's interesting to think about their proposition because it helps to focus on an important point.
And this important point is that responsiveness to change is gaining importance. When is it gaining
importance? Whenever the world changes. Legal rules must change when the world changes. And so,
the capacity of legal systems to innovate seems particularly important in areas of law
where the dynamic is very high. For instance, areas like company law, business law, economic law.
And it is quite telling that most of the articles that have been published concentrate on
corporate and business law. So, probably for public lawyers, it's much harder to discuss about
legal innovation in that sense than for private and business lawyers.
If you think about private law, and now I take the second step that I promise to take,
if you look at contract law, innovation isn't really that new. But private law has always
had some instruments that allowed for legal innovation.
And the reason behind that is, of course, party and private autonomy. The autonomy of private
parties to design their own rules, to design rules that fit their needs, that allows for the
development of new rules and the development of rules that are apt to new and individual
circumstances. The most interesting instrument of the legal system that fosters legal innovation
are default rules, as opposed to mandatory rules. Default rules
are, of course, rules that parties can contract around. And these default rules have always been
typical for private law since ancient Rome, another citation in Latin this time,
public communes, that means basically that all private law is composed of default rules. That
is not true to its full extent, but it has some truth in it. Default rules are a typical
private law instrument. They are an instrument that is provided by the lawmaker, provided for
private parties, but that allows private parties to contract around. Now, the discussion on
default rules has always focused very much on the substance. And the discussion is similar 100 years
ago between Stamler and Winsheid who discussed whether default rules should be fair, should
should follow a concept of fairness, or whether they should
express what the parties want. Or nowadays, economists like Posner and Ian Iris
will talk about market mimicking and penalty default rules. Of course, there are many
differences between these two discussions, but the basic idea or the basic approach is similar
that in substance you can either argue that default rules should be designed according to
the intention and to the will of the lawmaker, or the substance should be designed to comply with
the intention of the private parties because otherwise the parties would contract around.
So it's a discussion very much focused on substance. If you go along the line of innovation theory
and focus on the process that is triggered by default rules instead, then you get some
new insights on default rules because you then realize that the provider of the rules
has some advantages, whereas also the consumer, the end user of default rules,
has some knowledge advantages. The private actor, the end user, has on the one hand
a lack of experience because often it's the first transaction that he makes.
The default rules concern some future faults, for example, and the private actor doesn't have
enough experience to really know whether it is very probable or not probable that this fault will
arise. But this experience is easier to get for the lawmaker because at the collective level
it's quite easy to have this experience or it's quite present this kind of knowledge.
On the other hand, the lawmaker lacks the knowledge about the specific situation,
also the knowledge about new developments. He can't really foresee what private actors will need.
For instance, if new products are designed, it's difficult for the lawmaker to know in advance
what specific rules are needed for transactions concerning these new products. Also, the lawmaker
has a lack of experience. Only if these two actors are given a device that allows them to interact,
then a process of innovation and coordination of these two actors can arise. The mechanism for this
are default rules. If you think in terms of innovation theory, default rules allow for
the innovation of alternative rules, which are then adapted to specific circumstances.
Private parties can select different rules and sometimes it even happens that the lawmaker
imitates the rules that have previously been designed by the private parties. The lawmaker
really adopts rules that are standard terms among private actors.
Now, there were just some words on the national contract law just to give you an example of what
legal innovation might mean, or to give you some illustration of legal innovation in private
and contract law. Now, as I promised to talk also about the European level, I turned to European
contract law. It's even more interesting to think about innovation processes at the European level,
and this is because, on the one hand, legal change is taking place at a quicker pace at the European
level, but also because the instruments are more sophisticated, perhaps also a bit more
difficult to understand. Therefore, let me give you some background information, because before
then I really turn to the questions of the innovation process. Let me first
just quickly show you the development, which you probably already know.
The idea of a specific European contract law, not only specific directives, but a really
comprehensive contract law on the European level, has first been taken at the European Council in
Tambury in 1999. Then, in 2003, the Commission published its action plan, where it decided
to call experts, legal experts, to draft some kind of model rules on European contract law.
That has been done since 2005 by a joint network on European private law, a network of
groups that have already previously been working on common European contract law rules, but
had then joined forces in 2005 and published in 2008 and 2009, the so-called draft common frame
of reference, which is contained in a small book like this, but which is also contained in a
multi-volume series of books like this. The difference is that in the small booklet you
only find the rules, whereas here you find explanations and notes that are much more
extensive, in a sense. The present state-of-the-art somehow is a legal expert group that has just
started working in May 2010, and they have one year. Nobody really knows what they are supposed
to do, but probably their task is to think about what to do with these rules. They will probably
also assess the quality and the usefulness of the rules, but as far as the press statement of the
European Commission says, their mission is also to think about various options,
how to proceed with this rule book, because for the time being it's just a book. It's not
yet law in any sense of the word. It's an academic exercise backed by the European Commission, but
basically an academic exercise. The question now is, shall it become a law? Shall it become a
model law? Nobody really knows.
What is interesting, if you start from legal innovation, what is interesting about European
contract laws is that the main purpose of designing a European contract law has always been
the need for a modern legislative framework. There has always been, at least in the political
statements, a focus on very modern rules, something that is more modern than the traditional
code books of the national legal systems. Why is this so? Well, on the one hand, the function
of European contract law is much more focused on facilitating market transactions. Of course,
that is also a function of national contract law, but given the competences of the European Union,
facilitating and enhancing the internal market is much more important than at the national level,
and that is additionally underlined by the political context since the Lisbon agenda of 2000,
which is now a bit outdated because today the European summit will probably
take new measures because the Lisbon agenda doesn't really make sense because it wanted to
improve the European Union so that it becomes in 2010 the most competitive and most modern economy
in the world, which didn't really work out. But still, it's an interesting text because
this aim that the EU should become the most competitive and dynamic knowledge-based economy
in the world. One of the instruments that were designed to contribute to this aim
was the modernization of contract law and the Europeanization of contract law. So obviously,
contract law has always been thought as an instrument to contribute to a modern economy.
Similarly, in the Commission work program 2010, the argument goes that the modern European economy
is hampered by fragmented national contract laws, which constitute deterrence for the European
economy. And also in the new Europe 2020 strategy, the Commission says that it will propose action to
tackle bottlenecks in the single market by inter alia, making it easier and less costly
for businesses and consumers to conclude contracts and so on. So modernization of contract law is
a key building stone for a modern European economy. The question, therefore, is not only
the question on the one hand whether the CFR is modern, but it's also the question whether it is
open for future innovation because what is modern today might not necessarily be modern tomorrow.
So if it's really designed for a longer period, it should contain modern rules,
but it should also be open and responsive to future changes. Now, if you look a bit more closely at
the common frame of reference and think about its functions, about its elements and about its
purposes, then you will see that it's far from clear what kind of book the CFR is, but also what
process it might trigger. If you look at the functions, there are basically two different
functions. A third one is nearly excluded. The two functions should be used as a toolbox for the
legislator. Somebody said it's a reservoir of concepts, terms and definitions that the
lawmaker may use for future legislation, so it's designed to be a source of inspiration
for lawmakers and other actors. The question that is interesting for us
is whether legislating on the basis of such a toolbox changes the pattern of legal reform,
changes future legal innovation. The alternative is that it could also become one day an optional
instrument. An optional instrument can mean two different things. It can either mean a set of
standard terms that private parties can pick and write into their contract, or it can mean
a 26th legal order that can really be opted in, like you can opt in into a Portuguese law,
you could opt in in the CFR perhaps one day, but that needs further legislation. If the CFR
becomes one day an optional instrument, that would mean something different for the innovation
process it may trigger, because that would allow for vertical regulatory competition
and for a discovery procedure. In this alternative, private actors are the main drivers for legal
innovation, whereas when it's only a toolbox it's rather the legislator who makes use of the CFR.
When we think about the innovation process we should distinguish the two. As I said,
the CFR really becomes a civil code that is applicable all over Europe as one
B-E-B for Europe is not very plausible at the moment.
Second, which are the elements that constitute this common frame of reference? That is also
important because it tells a lot about the question whether the CFR is modern today,
but it also allows some, as we will see, allow some conclusions whether future legal reform,
in which direction future legal reform might go. Again, there are two main building blocks
and a third potential one which is nearly non-existing in the CFR. The first one is
comparative law. Comparative law has always been a source of inspiration for legal reform. I
mentioned Watson, I mentioned the concept of legal transplants, of borrowing from other legal
systems, but the difference that the CFR might make is the way it presents this comparative
knowledge, because rather than looking at a lot of different legal systems you have now one book
where you have this comparative experience together, but the CFR does not really present
all comparative experience, but it restricts itself to the so-called best solutions approach.
So it picks best solutions and doesn't really offer alternatives, only at one point where
the scholars couldn't really find a common viewpoint, it offers alternatives, but otherwise
it always picks the best solutions and only in the notes it also describes what other solutions
could be taken. Second building block, the so-called aqui communiter, the existing rules
in European contract law and existing directives and regulations, while that is also not really a
surprise as such, because existing law is always the starting point for legal change of course,
but again the difference is how this existing legal framework is presented, because it's presented
differently, it's no longer presented in directives, but it's taken together and structured in a new
way, so the question is whether it's a true-to-life picture of the existing framework or whether it is
somehow modified. A third potential element could have been social experience clauses and
rules that are designed by commercial actors, by private parties, but this experience hasn't
really found its way into the CFR, only in the mission or in the task description of the
European Commission. The formulation was national contract laws in brackets both case law and
established practice, you see a key and relevant international instruments, so social experience
only comes into the CFR as part of existing national laws. Third feature of the CFR that
I want to draw your attention to are the purposes of the CFR, and again there are three possible
purposes, but only two of them are really to be found in the CFR and they somehow contradict
each other. One purpose is clarification, the CFR as one of the draftsman said is a dictionary,
a translating tool that presents possibly the full range of potential solutions that presents
the legislator with options, so that gives a transparent and clear picture of the different
legal systems, but as I already said this purpose of clarification is somehow in the background
because the approach that really has been taken is rather this best solution approach, that not
the full clear picture of different solutions is given, but rather unification was the main
purpose, to identify the best solution was somehow a name on its own, of course if you design a rule
book like this you need some kind of coherence, you need some common language, already the fact
that it has been drafted in English makes it more unified and less somehow the pictures is not as
broad as it could be, it's also a snapshot in time, it doesn't contain future developments,
the diversity, the comparative diversity is contained only in the nods as I already said,
so unification seems to be the main purpose of the draftsman of the common frame of reference.
A third potential purpose might have been to innovate modern contract law rules
and this purpose might have been the main purpose if you think about what I said
about the importance of modern rules at the European level, but
it hasn't really been the purpose of the draftsman
and that it can be explained by the mission that was given to the draftsman by the European
Commission because they should really focus on comparative experience and on the ackee
and that doesn't leave much space for innovating new rules, in some areas however where
the comparative experience and the ackee are not very detailed you find some kind of innovative
rules, for instance with respect to service contracts there are some new ideas in the
common frame of reference.
Now after this wrap-up of key features you might think it's not really a very modern rulebook,
it's best solution approach, comparative experience, ackee, not very much innovation,
not oriented towards social experience, so it's rather the substance of the CFR is not very modern
but as I said when I talked about innovation theory we should not stop there, we should not
only look at the substance but we should also think about what processes might be triggered
by the CFR, where does it lead in future, what kind of of legal change might it trigger because
as I said it's not a rulebook, it's not a law but it's a toolbox, it's something that should be
made use of and that the legislator should implement in some way or another. So there's
still a chance that the process that is triggered that this process leads to some kind of innovation,
if you look at the entire system and at the process there still might be some legal innovation
triggered by the CFR.
In order or if we look at this process we will see that the functions and the purposes and the
elements that we have just been looking at play an important role for this future process.
The underlying assumption is when I talk about these future developments that there's some need
of creative destruction as Schumpeter expressed it, that there's some need of a process that,
well he talked about revolutionizing the economic structure, I would rather say
there's some need of potential for innovating the structure from within,
incessantly destroying the old one, incessantly creating a new one.
So the question is how much space does the CFR leave for future new ideas?
Well, there are various actors to which the CFR is aimed and all of these actors
might contribute to future innovation.
One target group are private actors and if you remember what I said about national contract law,
the degree of private autonomy is decisive when it comes to the space for innovating.
Now it has often been said that the rules of the CFR are mainly, well are less enabling
than in most national legal orders, that there is quite a lot of mandatory rules contained in the
CFR but one should be a bit careful about only looking at the number of mandatory rules
because we should also keep in mind the functions. If it is only a toolbox,
it does not matter whether the rules are mandatory or not because then they only become mandatory
if implemented by the legislator of course. If it's only an optional instrument then the
parties can choose or can opt within this optional instrument but they can also opt for another
regime so they have an additional degree of autonomy and it does not matter in the first place
whether the substantive rules are mandatory or not. Second, the courts.
It has often been said that the rules within the CFR are less detailed than the rules in national
courts, that the open textured style of the CFR is something that might increase the level of
discretion that judges have. But again, you should keep the functions in mind.
If it's an opt-in regime, this level of discretion is less problematic because parties choose then
that the courts should have this degree of discretion and also if it's only a toolbox
and I should perhaps mention that the toolbox is not only designed for the legislator but also
for courts. If it's a toolbox then it might even restrict the discretion of the courts and the
potential of courts to innovate new rules because the courts then interpret national legislation
in the light of this toolbox and if the toolbox contains the best solution they might tend to
interpret national legislation in the light of this best solution. So even if the style of the
single rules in the CFR are very general they might reduce the room for national courts to
innovate or the level of discretion that national courts have. Now the most important actor of
course is the European legislator and we should look a bit more closely at his role
because the CFR might be perceived as a kind of process innovation. If it is a toolbox it will
for sure change somehow future lawmaking of the European legislator but the interesting question
is in what way. Now if you look at it from a more economic viewpoint you should focus on
the costs of lawmaking. How do the costs of future lawmaking change?
Every lawmaking comes at a cost various sorts of cost for instance
costs of communicating and administering new laws but also research costs to get the knowledge
to legislate. Now if you have a toolbox you can get lawmaking at a lower cost because you have
already the knowledge that you need about comparative law about existing law at your
fingertips and it's much less costly to get information about various national solutions.
At the same time this book creates a sunk cost phenomenon because the European legislator has
already incurred some of the costs of lawmaking. It has already gone into this book.
Now with respect to the pace of legal change one could argue that change is going to arise
earlier and more frequently. The cost of lawmaking lowers you have
less research to do, you have less cost to incur, you have also a better justification
because you can say well we have already this comparative experience at our fingertips so it
might be thought that it's an incentive to legislate that you have this toolbox at your hand.
On the other hand the quality and the direction of legal change might also alter because it would
be natural for the lawmaker to rely on the cheapest information. Now which information
is comparatively cheaper than before? It's the information that is contained in this toolbox
that is comparative information but not any comparative information but the cheapest
information is the information about this best solution. Already information about
other solutions is a bit more costly because you need to look in this notes and not in
the main book. Intra-European comparative information is less costly than
for instance US American comparative information because again only the intra-European
comparative information is contained in the rule book and also information about
the existing law in the year 2008 is cheaper to get than information about future legal reform
in the various countries. So what will probably happen is that future law reform will focus on
this cheaper information on comparative best solution intra-European petrified information
that creates an additional risk of distortion towards what I have already said towards
certain comparative solutions.
I will soon have finished up already over time but I think it's only two further slides to go.
One is about framing effects. Now that is more behavioral economics than
transaction cost economics. Framing effects are a phenomenon that is discussed by psychologists
but also by economists. Frames influence human decision making. As Ionaris has one expressed
manus meta, the way that information is presented matters for the decision making and it matters
also probably for law making. I only mentioned now two points where this might play a role.
One is the scope of application of the common frame of reference. The integration and exclusion
of specific areas of law for instance the fact that unfair competition law is not contained
in the common frame of reference will probably influence future law making. The lawmaker will
not. It will be harder for the lawmaker to change the direction that has been taken by the common
frame of reference. The same is true if you look at categories for instance of service contracts
that are already contained in the common frame of reference. These categories will frame the future
law making process. Similarly there might be a tendency for the future lawmaker to take it all,
to take a whole block or to take this toolbox as a whole block rather than picking single rules
because there's always this fear that single rules might work differently if taken out of
the whole system. The same is true at the level of substantive choices at the detailed level
of single rules. Of course it's a non-binding instrument. It's only a toolbox
that does not necessarily find the future legislator but nonetheless I think it's
reasonable to argue that CFR rules might have a certain stickiness, that they might have a sticky
effect because political negotiations will start from this reference point. It's easier to justify
future rules that are based on the CFR than to design new rules. Again you have some costs
argument and you have a phenomenon that psychologists call anchoring effects if you start
taking decisions and the information you already have has already some kind of anchoring effect.
You rather stick to this proposition than deviate from it. So you could say that the CFR as a whole
is setting some kind of virtual default rules where a legislator might stick to in future.
So I'm nearly at the end but my conclusion would not be complete
if I only concluded that the CFR makes European contract law less innovative than before.
Of course at the European level my argument would be that there's not much room for innovation,
there's not much room for innovative concepts in future, rather an additional layer of path
dependency, rather a very traditional approach than an innovative approach in future. But if
you think about European contract law you must always think about the various layers of European
contract law and maybe it is even better if you have the experiments and the innovation
at the lower level, at the level of national legislators. National legislators might even be
the better laboratories for legal innovation because you incur lower risk, you have more
homogeneous needs of the addresses of rules, it's easier to identify their needs
and so maybe it's not that bad that the European framework is very traditional if you allow
for innovation at the lower level. But then you need to allow for decentralized experiments,
you need a screening process that allows for taking up successful experiments at the central,
at the European level and you also need a playing field for the national legislators,
they need room for innovating so maybe regulations should rather, or some directives
should rather be abandoned in order to give more room for innovation for national legislators.
Let me end with a much older citation which is only available in German
but which goes again back to the point that I initially made. European contract law was
basically an example and the point that I really wanted to make is that I think research on legal
innovation has some role to play and Gottfried Wilhelm Leibniz once said it's worthwhile to study
innovation and discoveries of other people because that might be a source of inspiration
for new innovation for ourselves so maybe it's worthwhile studying legal innovation because
that might be innovative for our own research. Thank you for your attention and sorry
for taking talking a bit longer than I should have. Thank you very much.