Klaus Ulrich Schmolke, ‘Economics of Remedies – The Perspective of Corporate Law’

ABSTRACT
From a law-and-economics perspective the primary goal of (legal) remedies is to enhance social welfare by minimising social costs. Remedies help to achieve cost internalisation since they provide means by which third parties who are negatively affected by the respective action are entitled to veto the action (property rule) or to claim compensation for their losses (liability rule). Examples from German stock corporation law illustrate the respective strengths and weakenesses of both types of rules. The right of each single shareholder to claim the rescission of an (allegedly) unlawful shareholders’ resolution by which the shareholder can effectively stall the execution of the underlying transaction (property rule) can lead to very expensive holdout problems. Liability rules like the shareholder’s appraisal remedy, on the other hand, may suffer from valuation problems. Additional incentive issues occur where the law employs the shareholder to protect the interests of the company, ie the interests of the shareholders in their entirety.

Schmolke, Klaus Ulrich, Economics of Remedies – The Perspective of Corporate Law (February 1, 2019). Law of Remedies: A European Perspective edited by Franz Hofmann and Franziska Kurz (Intersentia), forthcoming.

First posted 2019-03-21 07:06:09

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