From Economic to Legal Competition

From Economic to Legal Competition

New Perspectives on Law and Institutions in Europe

New Horizons in Law and Economics series

Edited by Alain Marciano and Jean-Michel Josselin

The idea of legal competition as a decentralized market process of law provision in which legal clubs compete, has earned an indisputable legitimacy among economists. This book presents a debate concerning the merits of and conditions for a competitive provision of law, with a special focus on institutions in Europe.

Chapter 7: European policymaking: An agency-theoretic analysis

Dieter Schmidtchen and Bernard Steunenberg

Subjects: economics and finance, public finance, law - academic, european law


Dieter Schmidtchen and Bernard Steunenberg INTRODUCTION In various European legal acts the Council has delegated power to the Commission to set common policy, conditional on specific procedural requirements. Those requirements are commonly known as ‘comitology’. In this chapter we analyse whether and how far these implementation procedures help to overcome a dilemma of delegation,171 which arises if (a) a principal and an agent have conflicting interests and (b) the principal, due to the structure of the principal–agent relationship, cannot perfectly control the agent (structureinduced agent discretion). As is well known from the principal-agent literature (see Sappington 1991), conflicting interests and information asymmetry allow the agent to choose actions which are inconsistent with the preferences of the principal. However, as is often overlooked, conflicting interests and asymmetric information are sufficient but not necessary conditions for agent discretion. We also have room for agent discretion with perfect and complete information, if the structure of the principal-agent relationship allows the agent to deviate from policies preferred by the principal. This kind of discretion, that has been labelled by Steunenberg (1996) structure-induced discretion, can arise, for example, if the legislature has difficulties in deciding collectively on its actions (see also Cooter, 2000: 154–61). The legislative process can be hampered by majority rule cycles, which the agent may employ to its advantage (Hill 1985). Furthermore, new legislation can be blocked if political actors do not agree on any deviation from the current agent policy (see Ferejohn and Shipan 1990; Eskridge and Ferejohn,...

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