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Suretyships and Consumer Protection in the European Union through the Glasses of Law and Economics
Abstract
This chapter gives an overview of arguments prominent in the economics of suretyship law. The intention was to show that economics may help answer some puzzling questions of suretyship law, but also to make some recommendations on how suretyship law may be improved. In order to provide a balanced view, the economic model of sureties who behave rationally was countered by the findings of behavioural economics. The theoretical discussion was supplemented by a comparison of family suretyship law in Germany and England, which showed that different legal orders react differently to the problems that may arise from suretyships. There seems to be two paradigms from which suretyship law may be derived: on the one hand the liberal paradigm, which assumes that sureties act with a high level of rationality and thus views a modest regulation of suretyship transactions as sufficient; and on the other hand the paternalistic paradigm, which assumes subjects are only bounded rationally and have to be protected against their sometimes irrational behaviour.
There is a growing interest in understanding consumer ethical actions in relation to their dealings with firms. This paper examines whether there are differences between Northern and Southern European Union (EU) consumers'' perceptions of ethical consumer behaviour using Muncy and Vitell''s (1992) Consumer Ethics Scale (CES). The study samples 962 university students across four Northern EU countries (Germany, Denmark, Scotland, The Netherlands) and four Southern EU countries (Portugal, Spain, Italy, Greece). Some differences are identified between the two samples, which might question the ability of organisations to consider the EU as one homogeneous market.
With increasing frequency, economic analysis has been employed as a guide to formulating legal rules. Richard A. Posner's recent book, Economic Analysis of Law, is the most wide-ranging and comprehensive attempt to apply the efficiency criterion to legal problems. In this Comment, Professor Polinsky critically examines three central assumptions underlying Professor Posner's analysis in order to highlight the limitations as well as the value of combining law and economics. He concludes that a market-type solution to legal problems often will not promote efficiency because of the nature of transaction costs, and that the goals of equity and efficiency may be inseparable due to the costs of redistributing income.
Guaranty arrangements, in which one person stands as surety for a second person's obligation to a third, are ubiquitous in commercial transactions and in commercial law. In recent years, however, scholarly attention to the topic has been scant; and there is still no theoretical treatment of this body of law or practice from a economic policy perspective. This paper, accordingly, attempts to outline the basic economic logic underlying the guaranty relationship, and applies the results to a variety of specific issues in government policy and private planning. It poses and answers three main questions: First, why would a creditor prefer to make a guaranteed loan rather than an unguaranteed one? The answer is not as obvious as might first appear, given that market competition over credit terms tends to adjust the interest rate paid by an individual borrower to reflect the specific default risk that he presents. Second, given that they bear the residual risk of debtor default, why would guarantors prefer to guarantee loans rather than make loans directly, thus foregoing the opportunity to earn interest payments that could help to compensate for the risk they bear? Third, even if it is efficient for one creditor to provide funds and another to provide insurance against default, why would the parties prefer to implement this arrangement through the triangular form of a guaranty, instead of simply having the former creditor lend to the latter and the latter lend to the ultimate borrower?