Market Paradigm for Understanding Economic Law as an Autonomous Discipline

Abstract

Inspired by knowledge of law and economics and competition law, this paper suggests an integrated framework for understanding economic law as an autonomous discipline. In developing this framework, this paper first assumes economic law to be an independent body of law comprising various branches of rules to redress market failures. Competition law is placed at its center to describe a general theory concerning the advantages and limits of an ideal market. Each branch of rules then either substitutes or complements competition law to correct market imperfections.

More specifically, this paper suggests that those branches of rules be considered as solutions to improve the externalities, small number, information asymmetry, and the transaction cost problems. Based on the preliminary analysis results, this paper elaborates on the questions concerning the substitutability and complementarity between different branches of economic law and compares their effectiveness in addressing the same market failures.

The implications for international economic law are considered next. The market-failure proposition provides systematic criteria for assessing whether domestic failures (ex. financial crisis) might be more effectively addressed by international mechanisms (ex. IMF). The term “international” also denotes that failures are observed in a much greater geographical area and among participants holding more divergent views regarding their gravity. This framework contributes to the debates on “regulatory competition” by incorporating into it more specific determinants to sort out the optimal institutional designs.

This paper concludes by noting and responding to criticisms on this framework. For instance, the market-failure classification could be challenged as over-simplified. Economic laws are frequently enacted to address simultaneously several failures. In addition, the framework might fail to explain those laws designed to accomplish redistributive goals. This paper argues that the first critism is based upon a static view on the legislative purposes of economic law while in practice they are dynamic and sequential. Alternatively, the benefits from redistribution might be treated as a “public good” analyzable under the positive externalities hypothesis in the framework.

Keywords: market paradigm, market failure, law and economic, economic law, international economic law, competition law, regulatory competition

JEL Classification: F02, F10, F20, F30, F40