10.1515 - Rle 2022 0074

Rev. Law Econ.
2023; 19(2): 115–150
Hans-Bernd Schäfer*
My Study of Law and Economics. An
Educational Journey with Knowledgeable
Tour Guides
https://doi.org/10.1515/rle-2022-0074
Published online February 23, 2023
Abstract: After studies of economics and business administration in Cologne my

academic career as an economist started 1968 as a doctoral student and later as a
post doc in the Institute of Development Research and Development Policy of the
University of Bochum in Germany. The economic theories, with which I worked at
the time had no relation to legal or social norms. This changed, after I became a
professor of economics in the newly established second law department of the Uni-
versity of Hamburg. It was a model trial of a reformed legal education. My lawyer
colleagues propagated a more policy oriented and teleological understanding of the
law, legal scholarship, and teaching and demanded the integration of social sciences
into the study of the law. I began studying and teaching the classical writings of
the American law and economics pioneers and related them to German private
law. Gradually I shifted the focus of my academic interest and publications from
development studies to the economic study of civil law and became increasingly
convinced that “law and economics” corrects a scientific fallacy, which emerged
when the two disciplines fell apart. Later I joined -together with my lawyer col-
league Claus Ott-the European master program in law and economics, established
a doctoral program in law and economics and the Hamburg institute of law and eco-
nomics. After the merger of the two competing law departments the united faculty
took supportive and far reaching decisions to consolidate the institute and make
it a center for the study of law and economics. The following pages show in more
detail the factors and reasons, which made me a convinced supporter and scholar
of the economic approach to law and of institutional economics.
This is an English translation of a paper in German language, which the author wrote upon invitation
by the editors of the Journal “Zeitschrift für Europäisches Privatrecht” (ZEuP) to be published in Vol. 1,
2023. The text is slightly changed for an international readership. The author thanks the editors of the
Review of Law and Economics for this honorable invitation.
*Corresponding author: Professor, Hans-Bernd Schäfer, Emeritus of Economics, University of

Hamburg, Hamburg, Germany; and Affiliate Professor of Law and Economics, Bucerius Law School,
Hamburg, Germany, E-mail: hans-bernd.schaefer@law-school.de
Open Access. © 2023 the author(s), published by De Gruyter. This work is licensed under the Creative
Commons Attribution 4.0 International License.
116 — Hans-Bernd Schäfer
Keywords: law and economics, law and development, economic growth, Germany,
civil law
JEL Classification: K00, A12, A13, A20
1 School Years in Bottrop, Germany

There were no scientists or academics in my family. My mother worked as a nurse in
a military hospital in Münster until shortly before I was born in 1943. Her father had
been a train driver. My father was a tailor who continued his father’s business in the
mining town Bottrop after the war and later also offered made-to-measure clothing.
That would have been the natural career for me, too. I could have lived with that.
As a child I often watched my father at work, drawing lines on the cloth with a
chalk pencil, cutting out the pieces and finally assembling them into a suit. So my
parents sent me to Realschule, which was then the intermediate level of secondary
education in Germany, with the prospect of starting an apprenticeship afterwards.
But then a biology teacher really kindled my interested in the subject. I began col-
lecting butterflies and set my mind on becoming a biologist. When I found out that
path would require me to pass the Abitur (the highest secondary education exams,
equivalent for example to A Levels in the UK) and study at university, I pestered my
parents to let me change from Realschule to Gymnasium, the highest level of sec-
ondary education. My mother was very supportive of this – my father much less
so, but eventually he gave in. So, in 1957, I made the switch. One of the ensuing
challenges was that at the Realschule, Latin had not been taught – but at the Gym-
nasium, it was then the first foreign language, taught right up to the Abitur. I had a
year to make up for the four years of missed Latin lessons with the help of a tutor
and succeeded sufficiently. From then on I also took violin lessons and made it to
concertmaster in the school orchestra. I even had the privilege to play the Carmina
Burana under the baton of its composer Carl Orff, who was deeply engaged with
school music at that time.
I completed the remaining five years at the Gymnasium without difficulty but
not brilliantly. In my Abitur exams in 1962, I achieved excellent results only in indi-
vidual subjects such as history and music. My enthusiasm for biology had not lasted.
The most obvious thing for me to do would have been to study history to become a
teacher. Instead, I chose economics. Practical considerations played no role in this
decision. At that time, in a state of permanent full employment, the odds of getting
a job were of no concern to us. Also, I had very little tangible information to base
my decision on. Nor did my family provide any helpful suggestions or role models.
The decisive factor in my choice of subject was probably my history teacher, who
My Study of Law and Economics — 117
placed historical events such as the Stein-Hardenberg reforms, the German Cus-
toms Union, or the Great Depression in an economic context. From him I learned
the names and basic ideas of Adam Smith, John Maynard Keynes, and Friedrich
List, and I developed an appetite for more. Moreover, the economist Joseph Alois
Schumpeter was well known among craftsmen and merchants in Bottrop. Several
of my parents’ acquaintances claimed to know him personally and to have dis-
cussed economic problems with him. In fact, as a professor at the University of
Bonn, Schumpeter had lectured frequently at chambers of crafts and trade in the
Rhineland and Westphalia regions, using the fees to gradually pay off the debts he
had incurred because of the bankruptcy of his Austrian bank before he went to
Harvard in 1932 and shed his financial worries. In any event, my choice of studies
was based on a narrow information base. Picking a theoretical subject over a more
practical one was certainly not a conscious decision.
2 Studying Economics at Cologne University

Since I did not want to study far from home, especially for financial reasons, the only
available choices at that time were Münster, Cologne and Bonn. I picked Cologne and
began my studies in the winter semester of 1962. I attended lectures by Alfred Müller
Armack, one of the academic fathers of the social market economy, who at the time
held a chair in economic policy and was also a junior minister in Ludwig Erhard’s
Ministry of Economic Affairs in Bonn. He had an unpretentious way of clearly pre-
senting the essential elements of the Freiburg School and invited his students to join
in the discussion. Another prominent exponent of the Freiburg School was Hans
Willgerodt, an astute and precise economist who also placed great emphasis on the
foundations of economics in philosophy, and history of ideas. I once asked him if he
could recommend some basic literature. He recommended “The Open Society and
Its Enemies” by Karl Popper, “The Road to Serfdom” by Friedrich von Hayek, and
the “Communist Manifesto” by Karl Marx and Friedrich Engels. I took the advice
and studied the three works. Although I disagree with Hayek regarding his market
fundamentalist economic policies and his strident rejection of the welfare state and
even the notion of “social justice” as an analytically empty and purely political battle
cry, I have since developed and maintained a high opinion of him by reading more
of his writings, especially his paper “The Use of Knowledge in Society” (1945). To this
day, I believe that no scholar before him understood quite as clearly the nature of
the market economy as a decentralized process of discovery. Popper’s book, in turn,
has greatly enriched and influenced me for obvious reasons. I am also grateful for
the reference to Marx, which one would hardly have expected from Willgerodt.
At the time, many saw in Marx nothing but a prophet of a totalitarian system.
Willgerodt seemed to have realized, even at the height of the Cold War, that this was
a distortion of his work by Soviet propaganda and that Marx should be regarded as
one of the great social scientists of the 19th century, on a par with, say, Max Weber
or John Stuart Mill.
At that time in Germany, the theoretical, model-based style of economics was
advocated especially by Theodor Wessels and his assistants. To me, it was a fasci-
nating world of reductionist and mathematical models that yielded insights that
would not have been possible by reasoned or clever argumentation alone and that,
moreover, were often completely counterintuitive. At the time, I was particularly
interested in international trade theory and its perplexing theorems. In retrospect,
I also realized how difficult it is in this field to keep up quickly with scholarly
research.
Probably in 1965, I attended a special course on game theory given by a young
lecturer to a small group of students, in which we learned only about the zero-sum
games of von Neumann and Morgenstern. The extension of game theory by John
Nash, with his fundamental new concept of equilibrium, was not yet covered in
this course, although it had then already been 15 years since Nash’s seminal pub-
lication on the subject. Its importance for social science has even been compared
to the discovery of the double helix by Watson and Crick. I first heard the term
“Nash equilibrium”, which is now very well-known even beyond economics, years
later when I was already a research assistant. I had a similar experience in Cologne
regarding the research of Reinhardt Selten, an economist teaching in Bonn, which
often came up especially in lectures on business administration, but this only con-
cerned his criticism of the rational choice model and his easily accessible version
of “bounded rationality”. By contrast, during my studies in Cologne I never heard
anything about his outstanding research result on subgame perfect equilibria, for
which he later received the Nobel Memorial Prize together with Nash and which
was published in German in 1965.
In Cologne, all students of economics and business administration had to attend
lectures in law (mainly civil law), take a major civil law exam and pass an oral
exam. I was not particularly interested in the legal courses for the most part. We
were trained to be mini lawyers who had to solve simple civil law cases. We did not
learn anything on the foundations or aims of the law, nor did we hear how much of
the law is disputed and why. Much later I read the book “Introduction to Law” by
Gustav Radbruch, which was based on a lecture he had given to business students
before World War I at Mannheim. There was a world of difference between this
book and the legal teaching for economists in Cologne at the time. A great excep-
tion to that uninspiring legal education was the course on constitutional law by
Hermann Jahrreiß, which he had designed especially for students of economics,
and which I still remember well more than 50 years later, for example for his
excellent presentation of the principle of proportionality. Jahrreiß strongly rejected

the social contract theories, but presented them in such a differentiated and vivid
way that later, when I studied the works of Buchanan, Tullock and Rawls, I was
equipped with solid prior knowledge and critical faculties.
I wrote my diploma thesis, supervised by Theodor Wessels, on the question of
how currency devaluation affects the balance of trade. I travelled to London with
two fellow students, one of whom was also working on international trade theory.
We worked at the London School of Economics, where we received important input.
My model-theoretic thesis was well received and helped to open up an academic
career for me later. It was also in London that I met my dear wife, Doris. Later, we
moved in together and got married in 1968. We have two daughters, Ilona and Anna,
and have celebrated our golden wedding anniversary a few years ago.
Social policy became my special subject. I studied it with Gerhard Weißer,
a committed Social Democrat and co-author of the Godesberg Party Program, in
which the German Social Democrat Party made its peace with the market economy
and NATO. At the time, Weißer developed ideas that resemble what Amartya Sen
would much later call the “capability approach”. Unfortunately, Weißer’s writings
on the foundations of social policy, which were only published in German, if at all,
were never disseminated internationally. Weißer’s central concept of human wel-
fare was the “Lebenslage” (life situation), which, as in Sen’s “capability approach”,
does not derive social welfare solely from the aggregated subjective well-being or
utility of individuals but uses more objective measures.
In 1966, I graduated in economics (Diplom-Volkswirt) after nine semesters with
decent but not outstanding results, except for the thesis. In the meantime, me and
my friend with whom I had already been to London had learned that it could be pro-
fessionally advantageous to add a degree in business administration to our diploma
in economics. The faculty encouraged the students to do so, facilitating the transfer
of credits from one course to the other. So, after just one more year of studies, in
1967 I also passed my exams in business administration (Diplom-Kaufmann).
3 Bank Employee in Frankfurt, Research Fellow in

Bochum
I wrote my doctoral thesis at the newly founded University of Bochum, where Willy
Kraus, formerly a research fellow at the chair of Theodor Wessels in Cologne, was
the director of the Institute for Development Research and Development Policy
(IEE) and my supervisor. The thesis examined the then popular 20th century theo-
ries of imperialism in the light of modern international trade theory. And it served
me well. I received the highest grade, the dissertation prize of the University of
Bochum, and an offer to work as a post doc research fellow at the IEE. At that time,
such positions were not advertised, but awarded at the professor’s discretion.
After submitting my dissertation, however, I first took a job in April 1970 at the
Bank für Gemeinwirtschaft in Frankfurt, one of the big German banks at the time. I
was to assist the board of directors. The chairman of the board, Walter Hesselbach,
was a member of 16 supervisory boards, including Fried. Krupp GmbH (then still the
largest German industrial company), Siemens, Volkswagen, and other large German
firms. Before the supervisory board meetings, the managers sent around reports.
My job was to go through them and write a memo containing the most important
points for the CEO of the Bank für Gemeinwirtschaft. This was very instructive
for me, because I quickly got to know the management problems of many large
companies from a bird’s eye view. For the first time, I professionally encountered
significant legal problems. High losses on individual projects were the prominent
items on the agendas. Time and again, management had taken on unmanageable
contractual risks in supply contracts by agreeing to fixed prices, resulting in eight-
digit losses because raw material prices had risen, or the required effort had not
been estimated correctly. Having only worked there for a year, I did not hesitate to
accept the offer from Bochum and started work as a research fellow at the Faculty of
Economics in April 1971. Scientific work and academic freedom ultimately seemed
more appealing to me than a career in management. I never regretted this, although
my workload became much greater than at the bank. Working in the private sector
was not as possessive and debilitating as scientific work.
At the institute in Bochum, economists, sociologists, econometricians, and a
legal scholar worked together on questions of international development coopera-
tion in a collaborative research center funded by the German Research Foundation.
I was also in touch with the chair of economic theory and taught introductory
lectures on macroeconomics. In addition, I began lecturing on the economics of
developing countries at Kabul University under a partnership agreement, and I
also wrote a co-authored study on government revenue in Afghanistan. Between
1972 and 1975, I travelled to Kabul several times. At that time, the Universities of
Bochum, Cologne, and the Technical University in Aachen were jointly establishing
a faculty of economics there. I became involved in this project and made Afghan
friends. Most of them later fled to Germany, and one of them became a professor at
a German university. One of them died in the violent clashes between Moscow- and
Beijing-oriented communists.
Over time, however, I became skeptical of development economics as it was
taught then, including by myself. The scientific mainstream was partly based on
a mechanistic growth theory that attributed economic growth primarily to capi-
tal accumulation and resource mobilization and which, from today’s institutional
economics perspective, failed to address the causes of national poverty. There was
virtually no growth theory that analyzed the deeper roots of underdevelopment

– something that was quite naturally addressed in the writings of Adam Smith and
the French physiocrats of the 18th century – and described the institutional, espe-
cially legal, preconditions for economic development. Although many legal scholars
recognized the enormous importance of law for economic development, they con-
sidered this a know-how problem that could be solved by giving students from
developing countries a first-class legal education in Western Europe or North Amer-
ica. This later proved to be a gross error of judgement. Development economics
at the time was also characterized by a deep pessimism about the performance of
market economies in poor countries. Leading economists – Nobel laureates Gunnar
Myrdal and Arthur Lewis, as well as Harvard/Yale economist Albert Hirschman are
just three of the most prominent names on a long list–diagnosed so many cases of
systematic market failure in poor countries that could not be corrected by regula-
tory law that they attributed the decisive role in the development process to state
planning and regarded the market economy as a luxury for rich countries. While
this view was also subject to criticism, it dominated both academia and develop-
ment policy regarding poor countries in the early 1970s.
In retrospect, the sociologists I worked with at the time were similarly mis-
taken. Among them circulated the idea that economic development in Sub-Saharan
Africa would progress much faster than in Asia as the former would more read-
ily adopt the European culture. By contrast, the hierarchical thinking that is
widespread in East Asia and is culturally and religiously determined stands in the
way of entrepreneurial activity and rapid economic development. Or so the story
went – just as the East Asian tiger economies were beginning to rise from the group
of the poorest to that of the richest nations in the world within half a century and
Japan was already highly developed, a success that no country in Africa or South
America has so far achieved.
At the beginning of the 1970s, the hitherto rapid growth of the German univer-
sities came to an end, and with it the seemingly endless flow of new professorships.
Word spread quickly among the research fellows. The professional prospects were
suddenly looking weaker. I therefore began to apply for professorships and fortu-
nately soon received two offers, one at Wuppertal and one at the Law Faculty of
the University of Hamburg. I gratefully accepted the position in Hamburg, mainly
because it meant the end of all financial insecurity for me as a family man. There
were no other reasons for me to leave the IEE in Bochum after only four years,
apart from the fact that I had the feeling of being welcomed by my new colleagues
in Hamburg. Little did I know that a lengthy, intense, and exciting journey through
the law lay ahead for me.
4 Single-Stage Legal Education in Hamburg

At the University of Hamburg, in the summer semester of 1975, I became a professor
of economics in the Department of Law II (and later also a member of the Depart-
ment of Economics), which, pursuant to an experimental clause in the German
Judiciary Act, offered a single-stage education in law. This reform curriculum ended
in one rather than two state examinations and was quite interdisciplinary. Almost
all of my colleagues were below 40 years of age and considered themselves the
avantgarde of a far-reaching reform of legal education. The elements of this reform
had been laid down in the so-called “Second Report”. Its authors included the Pres-
ident of the Hanseatic Higher Regional Court and the Judicial Examination Office,
Walter Stiebeler, the Hamburg judges Kuno Roß and Ronald Randzio, the sociolo-
gist Fritz Haag, and the constitutional law scholars Wolfgang Hoffman-Riem, later a
judge at the Federal Constitutional Court, and Hans Peter Bull, later Germany’s first
Data Protection Commissioner, long-time Home Secretary of the state of Schleswig-
Holstein, and Director of the Institute for Administrative Science, as well as the civil
law scholar Claus Ott, who later became my co-author and friend. The Report con-
tained fundamental programmatic statements on jurisprudence and the reform of
legal education. It summarized and carried forward what had been debated for a
hundred years and adapted it for the purposes of our reformed faculty. It did so in
a style that was bold to the point of arrogance. The cooperation of different disci-
plines in teaching and research was apostrophized as the “integration of law and
social science”, which ultimately denied the law the character of an autonomous
discipline. The Report considered it axiomatic that neighboring sciences not only
acquire significance for the foundations, history and facts of law, but are indispens-
able for the interpretation of legal texts and the development of judge made law.
The authors and proponents of the Report were heavily influenced by Rudolph von
Jhering’s program, according to which the understanding of legal texts in terms of
the purpose of the law is an essential part of legal science, and a purely doctrinal
approach focused on the concept and system of law that completely disregards its
purpose will always be incomplete. From there it is only a small step to demanding
an interdisciplinary jurisprudence that relies on research results that refer to end-
means relations. For if the end is recognized as an important category in law, this
leads to an interdisciplinary jurisprudence because then the alternative can only
be to make statements about the relationship between ends and means either with
scientifically founded findings or with intuitive everyday theories, which by their
very nature are much more prone to error.
These ideas sparked an atmosphere of awakening and a pioneering spirit. For
me, reading the Second Report was my introduction to law as a highly complex and
intellectually challenging discipline. Hours of discussion were spent planning new
courses. Moreover, there was a tendency among the colleagues to have extended
conversations about jurisprudential content and disputes that had nothing to do
with the concrete planning of the curriculum. My arrogance toward the study of
law, especially civil law, which following my training in Cologne I had viewed as
not much more than another form of stamp collecting, quickly faded. In a faculty
of 15 professors, four of us had no law degree and were suddenly confronted with
entirely new tasks.
However, I lacked the starting point of how the economics I had studied could
be brought to bear on legal issues, as I had heard nothing about new institutional
economics or the economic analysis of law by then. My microeconomics had fea-
tured some reference to competition law, and the macroeconomics made reference
to constitutional law and Germany’s Stability and Growth Act, which was influenced
by Keynesian theory and much discussed at the time–and that was it. Conducting a
model experiment, the faculty was well staffed, so I was able to jointly teach some
of these courses with Wolfgang Hoffmann-Riem and later with Lerke Osterloh, who
also went on to become a federal constitutional judge. In this and similar ways, I
was introduced to the subject of law. In contrast to these fruitful experiences, nega-
tive impressions also arose, such as the attempts to teach East Berlin-type Marxism,
which was popular among students and individual colleagues. I vigorously rejected
the idea of portraying the Stability and Growth Act as a neo-fascist enabling law and
blocked proposals to introduce texts to that effect to the lectures. Among the stu-
dents, where the theory of “state-monopolistic capitalism” enjoyed great popularity,
my refusal was met with mixed feelings.
The impetus to look more closely at the writings of Ronald Coase, Guido Cal-
abresi, Richard Posner, Harold Demsetz and Gary Becker came from a colleague,
the civil law scholar Rainer Walz, who drew my attention to Coase’s paper “The
Problem of Social Costs” (1960), which he had encountered during his studies in the
USA and on which he had published one of the first papers in German. I began to
read these authors and became convinced that something was emerging here that
corresponded to the basic orientation of the reformed faculty of law at Hamburg
University. We founded a reading group, which besides Rainer Walz also included
the research fellow Detlev Rahmsdorf and the civil law scholars Gerd Struck and
Helmut Kohl. We met every Monday afternoon for a two-hour session and discussed
the writings of these founding fathers of the economic analysis of law and insti-
tutional economics – papers that have since become classics. In addition, Michael
Adams, who had completed his habilitation with a thesis on strict liability and negli-
gence from an economic perspective, came to Hamburg to teach law for economists
in the economics department. He had boundless enthusiasm for this new line of
research, comparing it to the reception of Roman law in the Middle Ages. He was
later disappointed and demotivated by the fact that this new research area did not
expand more rapidly in Germany. For many years, we met each week in a coffee
shop and discussed almost exclusively the new line of research. Michael Adams
was one of the founders of the “European Association of Law and Economics”, to
which he drew my attention and whose conferences I began to attend regularly.
I was also in contact with the civil and European law scholar Peter Behrens, who
brought additional interdisciplinary thinking to our department.
The intensive study of the economic analysis of law was an exciting educational
process for me, but initially had no impact on my teaching or publications. That
only changed when the focus programs for senior students began. Claus Ott was in
charge of the “commerce” focus, which covered commercial and corporate law as
well as large parts of the German Civil Code in depth. I drew his attention to the
economic analysis of law and offered to teach a course on the economic analysis of
civil law as part of this program. Since then, I have taught a two-hour course in this
program every year, focusing on the economic analysis of contract and tort law. I
also began to give individual lectures in the relevant civil law courses.
A special interdisciplinary touch was added to the focus program by an annual
weekend seminar that Claus Ott and I held together with a lecturer who in his main
profession was a civil law judge at the Hamburg Regional Court. His task was to
compile cases from his own practice and from the literature that were suitable for
economic discussion. For many years Klaus Schülke, who later became a judge at
the Federal Patent Court in Munich, assumed this task. Together with Claus Ott and
the students we then discussed these cases. The students had to show whether the
case had a structure that could be interpreted in economic terms. This was possible
surprisingly often and quite naturally, which confirmed to all of us that economic
considerations can be helpful in solving legal cases. Two examples may illustrate
this.
– A music lover and expert on old scores had bought the first print of a Mozart
piano piece for a ridiculously low price at a flea market. He had not informed
the seller that the sheet of music was of enormous value. The question was
whether the buyer had a pre-contractual duty of disclosure, whose breach
would lead to damages or to the contestability of the contract. From an eco-
nomic point of view, this question must be answered in the negative. This would
destroy any incentive for interested persons with expert knowledge to search
for valuable pieces on such markets, or to acquire the expert knowledge in the
first place. Unique pieces would then soon enough end up in the trash, rather
than in a museum. Value would be destroyed.
– Another case from the practice of the Hamburg Regional Court concerned a
faulty car wash. The system was defective and caused several thousand marks
of damage to a car. The car owner sued the operator, who is generally liable
for any damages arising from negligence. The defendant denied negligence,
claiming that his car wash was serviced professionally every month. He also
presented expert testimony from his industry association to the effect that
approximately three such incidents occur each year in Hamburg, and that the
total damages incurred at all Hamburg facilities are only a small fraction of
those costs that would be incurred if due diligence efforts were increased, such
as inspecting the facilities twice a month or even every week. The total costs
of avoiding damage would have been disproportionate to the total damage
avoided as a result. In this respect, from an economic point of view, the oper-
ator was not negligent. However, he could have insured the damage and thus
probably done the vast majority of customers a favor, even if this would have
slightly pushed up the price of his service. The customer, on the other hand,
cannot insure himself against this specific risk. The operator’s breach of duty
thus consisted in failing to take available insurance. The victim’s claim was
therefore to be upheld, even though avoiding the damage would have been
unreasonable.
Over time, we probably discussed hundreds of practical civil law cases at the week-
end seminars, always with the aim of finding out whether considerations from
the law and economics literature introduced by Posner, Calabresi and others con-
tributed to the understanding of the case and whether the economic solution could
be reconciled with the law and legal dogma.
5 Consumer Protection Law as a Correction of

Asymmetric Information
A further and, for me personally, important impetus to reposition myself scientif-
ically arose from a course on “Consumer Protection”, which I gave together with
Norbert Reich and Claus Ott. When I joined them, the course was already fully
planned. It consisted of a general theoretical part and case material from the Ger-
man Federal Court of Justice, mostly related to producer liability and the judicial
control of terms and conditions (T & C). Norbert Reich had already made a name for
himself in this field and founded a journal for consumer law, now the Journal of Con-
sumer Policy. At the time, it was a much-discussed area of law, where the civil law
tended to be much more caring than in other areas. The General Terms and Condi-
tions Act, which essentially codified a pre-existing body of judge made case law, was
passed at that time. Norbert Reich was a supporter of more consumer protection.
Studying the case material on T & C control, I could only agree with him. The court
decisions on the control of T & C seemed to me to deliver conclusive and comprehen-
sible results. However, I felt there was an irreconcilable contradiction between the
theoretical part of the course and the cases from practice, which did not seem
to bother Norbert Reich – perhaps because he did not see it. The theoretical
part consisted of literature that viewed the consumer as a helpless and spine-
less object of big business and powerful corporations. Among that literature was
“Hidden Persuaders” by Vance Packard, as well as various writings by Kenneth Gal-
braith, in which he rejected the idea of consumer sovereignty in favor of “producer
sovereignty”. In the age of monopoly capitalism, he argued, contract law oriented
toward formal private autonomy should be replaced or supplemented. Norbert
Reich even went one step further by introducing Marx’s distinction between use-
value and exchange-value and maintaining that goods that have use-value, rather
than just exchange-value, should not be subject to classical civil law – a logic which
I found myself unable to follow.
The cases we discussed in class, on the other hand, had a different background
and did not fit the theory part. The defendants were often medium-sized companies
that did not enjoy monopoly power but were rather exposed to strong competitive
pressure. A typical case was that of a young couple who had bought new bed-
room furniture. On delivery, the colors of the individual pieces of furniture did
not match. In the general terms and conditions, the buyers had waived all war-
ranty claims for material defects except for rectification. The rectification failed.
When the colors still did not match after a second, very time-consuming attempt
at rectification, the buyers wanted their money back, rather than agreeing to fur-
ther attempts to rectify the colors. The furniture store refused this with reference
to the general terms and conditions. The Federal Court of Justice ruled in favor
of the buyers and decided that after two unsuccessful improvements, the statu-
tory warranty rights were revived. These general terms and conditions had been
imposed on the buyers, although the furniture store was subject to strong competi-
tive pressure, and in a city like Hamburg, the buyers could choose among dozens of
competitors.
Consumers also seemed to me to be more autonomous and rational than sug-
gested by the literature, which assumed that they could be completely manipu-
lated. I rejected the idea that T & C could be rigged simply because they had not
been negotiated but were imposed unilaterally on the consumer, as is virtually
always the case. A buyer of bread generally cannot negotiate the quality of the
goods. Nevertheless, the market reliably ensures that products that do not meet
the buyers’ preferences will disappear. I brought up the example of the French car
manufacturer Citroën, which like many of its competitors responded to the 1970s
energy crisis by using thinner sheet metal to make the cars lighter and more fuel-
efficient. But they did so without increasing the quality of the steel accordingly. This
often caused corrosion of car bodies after only a year. However, at the time, the
warranty only lasted six months, meaning that the buyers were left with large
damages. Consumers reacted to this with a withholding of purchase, punishing the

company with losses that ran into billions. Again, this did not fit the picture of the
consumer being manipulated by monopoly companies. But I lacked the ideas and
concepts to convincingly argue against this widespread but inadequate theory of
consumer protection.
Finally, I was disturbed by a view among my colleagues that consumer protec-
tion always amounts to redistribution in favor of the consumer and at the expense
of company profits. This is at odds with the fact that any legislation that improves
the consumer’s position and redistributes risks to the supplier incurs costs that are
reflected in the price, regardless of whether the company is in a competitive or
monopoly market. More than one colleague rejected this point at the time, saying
it had to be proven first. I learned then how difficult it is to argue with legal schol-
ars, to whom thinking in terms of economic models and equilibrium prices is often
alien. Ignoring the economic logic can lead to a situation where consumer protec-
tion measures can actually hurt consumers because the measures are mistakenly
seen as redistribution between producers and consumers.
These questions preoccupied me at the time. They also frustrated me because
it was clear to me that an accurate theory of consumer protection had to be valid
not only for monopoly markets with market power but also for competitive mar-
kets and, moreover, could not be based on the image of a consumer who could be
manipulated at will. But I was not yet able to provide such a theory. However, this
changed during a stay in India, where I was confronted with consumer protection
problems that were completely new to me.
The summer term of 1980 was my first research term, spent largely at the Delhi
School of Economics, working on a monograph on economic development policy.
With my family, including two young children, we lived with a wealthy family in
New Delhi. At the beginning of our stay, the lady of the house gave us a crash course
on consumer self-protection. She took us to the bazaar and showed us how to buy
melons, chicken, oil, nuts and rice. For melons, she had brought a knitting needle.
Before buying, she would stick the needle into the watermelon, pull it out again
and observe if water leaked out of the hole. If so, this was evidence that the seller
had injected water into the melon to make it heavier and thus to fetch a better price.
Then the buyer would not only overpay but also run a health risk. If no water leaked
out, the melon was safe to buy. Our landlady also impressed upon us to buy only
live chickens that had been slaughtered, plucked and gutted in front of our eyes.
She cautioned us not to buy packaged food and to sample from the stacked goods
before buying. She bought cooking oil from a store whose vendor pressed the oil
from nuts for his customers to see, so she could be sure the product was pure and
unadulterated. Our landlady also bought a bag of rice. Back at the house, she poured
out the entire contents and spread the grains on the kitchen table. Then she felt each
grain of rice with her fingertips. She explained to us that this was necessary because
some merchants mixed the rice with tiny, crushed pebbles that are indistinguish-
able from rice grains to the naked eye. This increased the weight and price when
the rice was weighed and sold. For the customers, this brought the added risk of cut-
ting their teeth if they faithfully consumed the rice. A note to the readers: Since then,
the performance and information efficiency of Indian food markets have improved
dramatically. Today, the product range of supermarkets in Mumbai or Delhi is no
different from a comparable store in Hamburg or Shanghai.
When I told the story of the rice grains to an Indian colleague, he alerted me
to a paper by the Berkeley economist George Akerlof, who had also come across
the example of the rice grains during a visit to India a few years earlier. This
had inspired him to write an article containing the rice example, which is now
one of the most widely cited economic papers of the last 50 years: “The Market
for Lemons: Quality Uncertainty and the Market Mechanism” (1970). In the paper,
Akerlof showed how, in a competitive market without any monopoly power, with
rational buyers but asymmetric information between buyers and sellers, markets
can arise that offer only poor quality, contrary to buyer preferences. In a dynamic
process, the higher-quality goods demanded by the buyers are gradually replaced
by low quality goods. The result are markets that dwindle, like the rice market
in Delhi, disappear altogether, or never form in the first place. Akerlof had pro-
vided the theory of consumer protection that I had been looking for. Of course, his
theory can usefully explain not just pebble-studded rice portions but also unfair
T & Cs and many other issues of consumer protection. The validity of this theory
rests neither on market power or a structural imbalance of power in the conven-
tional sense, nor on the assumption of irrational consumers, but merely on an infor-
mation asymmetry between buyers and sellers that cannot be (fully) eliminated at
the time of purchase. The ultimate result of Akerlof’s analysis is a market equilib-
rium with competitive prices that no longer include extra profits and in which low
quality is sold at low prices (unlike in a monopoly). The end point is a degenerated
competitive market, as in the rice example or in used car markets, or else the com-
plete disappearance of the market. Unlike a monopolist the seller in a competitive
market, who exploits the asymmetric information can make an extra profits only in
the intermediate dynamic process before a new market equilibrium without extra-
profits is reached again. Never have I envied an economist as much as Akerlof. To
me, the rice-pebble example would have been but a curious anecdote. For Akerlof,
it was the impetus for a major extension of microeconomic theory, showing for the
first time how competitive markets with rational buyers can fail because it is too
costly for the buyers to correct information deficits before buying. Back in Ham-
burg, I wrote a non-mathematical text on the Akerlof market and the resulting
theory of consumer protection and introduced it into my teaching. The fruitfulness
and practical significance of this theory lies in the fact that asymmetric information
between sellers and buyers, which cannot be remedied by the market itself, pro-
vides a sufficient condition for consumer protection, while at the same time also
imposing limits on reasonable consumer protection if no information asymmetry
exists.
Twelve years later, at Berkeley School of Law, Claus Ott and I had the privi-
lege of speaking with Fritz Kessler, a German-born legal scholar who had worked
at the Kaiser Wilhelm Institute for Foreign and International Private Law in Berlin,
the predecessor of the Max Planck Institute in Hamburg. He had fled to the United
States in the 1930s, where he then exercised great influence on American contract
law and the development of consumer protection. He was familiar with our book
on the economic analysis of civil law and lauded its theory of consumer protection
based on asymmetric information. It was flattering to hear this from an eminent
legal scholar who, like Norbert Reich or Ludwig Raiser before him, had himself long
been a proponent of the monopoly capitalist exploitation theory of consumer pro-
tection based on a structural imbalance of market power and had justified stronger
legal intervention on the basis of an inadequate and selective economic theory.
6 Focusing on the Economic Analysis of Law

In 1982, I completed a development theory book on urban bias in the process of eco-
nomic development. This work shows how agricultural countries often industrial-
ized themselves by forcing their farmers to keep food prices for industrial workers
down through artificially low prices, export tariffs and export bans, and by influ-
encing the farmers’ choice of crops in favor of food. The aim was to keep labor costs
low by low costs for food, thereby to raise industrial profits and thus to accelerate
the rate of accumulation and growth of industry. For this purpose, I had intensively
studied the French physiocrats Turgot and Quesnay, who had analyzed and sharply
criticized the “urban bias” of the 18th century and had attributed France’s relative
economic stagnation to its mercantilist industrial policy, which neglected and, in
their view, even destroyed the country’s agriculture. Together with Adam Smith,
these authors were among the founders of economics as a science. They consid-
ered legal and institutional issues to be crucial to economic development. Adam
Smith even lectured on Roman law in Glasgow. Turgot and Quesnay convincingly
explained why the hereditary subservience of peasants associated with sharecrop-
ping as well as the unavailability of noble estates for purposes of credit security led
to the undercapitalization and relative backwardness of French agriculture, and
they argued for agricultural land to be legally recognized as property – a demand
that was ultimately implemented during the French Revolution. Such institutional
economic issues and insights were lost from sight during the 19th and especially
the 20th century. This reinforced my view that work at the intersection of law and
economics was fruitful and that the complete separation of the two disciplines had
been an aberration. I also became a member of the Committee on Developing Coun-
tries of the Verein für Socialpolitik (German Economic Association). From 1991 to
1995, I chaired that committee, even though I had already moved on academically
by then.
After completing this book, I asked Claus Ott, with whom I collaborated in the
focus program “Commerce” at Hamburg University, if he would write a book with
me on the economic analysis of civil law that covered the areas I was teaching.
While we had regularly been in touch about work, he was not one of the colleagues
– like Ronald Randzio, Rainer Walz, and Michael Adams – with whom I constantly
discussed law and economics issues or who belonged to our Monday debating
group. Nevertheless, Claus agreed, and that was the beginning of an intensive col-
laboration. We discussed almost every problem we wanted to cover, sometimes for
many hours or even entire days – be it about the extended retention of title or the
issue of priority of supplier versus bank credit in insolvency proceedings and the
associated incentive effects. I experienced Claus Ott, who besides his academic posi-
tion also served as a judge with the Hanseatic Court of appeal in Hamburg with a
workload of 10 percent, as a classic civil law scholar, who was extremely well versed
in legal doctrine but was equally open to any economic argument. Our aim was not
just to provide an overview of the new research area, but, to demonstrate its fruit-
fulness for legal questions and cases. We had a simple principle: Any content on
which we could not reach agreement even after extensive discussion would not
make it into the book. The work progressed well and after just over two years, in
1985, the manuscript was ready. Following the introductory part, it covered the eco-
nomic analysis of contract law, tort law, property and pre-contractual obligations,
as well as basic features of corporate law, in particular the function and limits of
limited liability in corporations. The book was published by Springer in 1986, to a
mixed reception. On the one hand, the only reviews we saw were two short pieces
of no more than 10 lines each. On the other hand, the book sold well. Pablo Salvador
Coderch, a civil law professor at the newly founded Catalan University in Barcelona,
liked the book. He organized a Spanish edition.
By the early 90s, the first edition of 1500 copies had sold out. Springer offered
to print a second edition. The book benefited from the fact that at the time there
was a controversy about the importance and methodological place of the economic
analysis of law within German jurisprudence, while in the USA, the research field
first developed by Coase, Becker, Posner and Calabresi was really taking off. All the
major US law schools recruited professors with a PhD in economics who contin-
ued the approach, expanded it, opened it up to new areas of law, and were also
more methodologically sophisticated than the founding fathers, except for Gary
Becker. I could easily list two dozen second-generation law and economics scholars
who contributed significantly to making their field the most important new legal
research discipline in the United States. Suffice it to mention just Steven Shavell,
Robert Cooter, Michelle White, Susan Rose-Ackerman, Tom Ulen, Mitchell Polinsky,
Henry Hansmann, Reinier Kraakman, and Lucien Bebchuk. These and many oth-
ers contributed significantly to expanding and systematizing the field of research
and giving it an important place in the argumentative arsenal of American jurists.
A similar development occurred in Israel.
In Germany and other continental European countries, “Law and Economics”
developed under more difficult conditions than in the US. This is also true for Eng-
land, where this line of research did not spread nearly as widely as on the other side
of the Atlantic. I think the most important reason for this divergence lies not in the
difference between “civil law” and “common law” countries but in the fact that in
the US there was already a long-standing and enduring influence of “legal realism”
when the pioneering writings on the economic analysis of law emerged. “Legal
realism” implies the belief that doctrinal, systematic, and conceptual legal consider-
ations are not crucial to understanding norms and deciding hard cases. They cannot
explain judge-made law and the judicial development of the law. This made Ameri-
can legal scholarship more receptive than European scholarship to influences from
neighboring sciences. In England, where legal realism was not as influential as in
the United States, the economic analysis of law encountered similar obstacles as
on the European continent. Although I naturally regret the greater difficulties in
the spread of this line of research in Europe, I confess that I am not a supporter
of “legal realism” when it goes so far as to altogether questions the usefulness of
classical legal doctrines. In fact, I have gained the greatest respect for legal schol-
arship that relies on system and concepts. Those implicitly contain the information
that enables the study of law as a decision theory when either the social purpose
of a norm or the end-means relations, or both, are not sufficiently known to deci-
sionmakers. To my knowledge, economic decision theory has never convincingly
addressed the actual capability of the method that legal scholars developed over
centuries. Without having to say anything about purposes or ends-means relations
they arrive at and justify socially relevant decisions when faced with difficult inter-
pretive problems. However, the importance of that method declines as legal norms
pursue clear ends and as scholarly research generates robust results on end-means
relations.
In the 1980s, there were already several forums in Europe for scholars to
present their research results on “law and economics”. These included, in par-
ticular, the European Association of Law and Economics, founded in 1984 by
the Swedish economist Göran Skogh and others, and the annual workshop on
institutional economics organized by Rudolf Richter from Saarbrücken, which was

always attended by the leading representatives of the field. Richter was also the
editor of the Zeitschrift für die gesamte Staatswissenschaft, which he renamed the
Journal of Institutional and Theoretical Economics and opened to the new line of
research. In addition to these venues, Claus Ott and I felt that to disseminate the
economic analysis of civil law in Germany, it was important to have an interdis-
ciplinary workshop that would be held in German and lead to German-language
publications. Therefore, in 1988, we organized the first “Travemünde Symposium
on the Economic Analysis of Law”, with about 15 legal and 15 economic scholars
from German-speaking countries. Each presentation by a legal scholar was followed
by a critical co-presentation by an economist and vice versa. In contrast to large
international conferences, we allowed plenty of time for general discussion among
the participants to promote interdisciplinary dialogue. The first conference was a
success. The positive feedback encouraged us to organize this conference regularly
every two years and to publish conference proceedings, initially with Springer Ver-
lag and later with Mohr Siebeck. Georg Siebeck, one of the owners and our lector,
put a lot of effort into these books. To him, promoting this new field of research was
a personal concern. We were able to cover the conference costs through third-party
funding from various funding organizations, especially the Fritz Thyssen Founda-
tion and the German Research Foundation.
The European Association of Law and Economics also flourished. Under the
leadership of Roger van den Bergh, the number of participants at the annual meet-
ings swelled to 150 and more. From 2004 to 2007, I was president of this association
and enforced new statutes which changed its legal status to a registered association
under Belgium law, limited the term of the president to three years and drastically
reduced the number of board members. A more professional structure of the asso-
ciation emerged, which ended its informal character from the pioneering days and
is still in place today.
National law and economics associations also emerged elsewhere throughout
Europe, for example in Spain, Italy, Poland and the UK. In 2002, at the Travemünde
meeting, the German Law and Economics Association was founded, and I was
its president for the first term. Since then, the association has held an annual
conference.
This was part of a worldwide development that affected all continents, espe-
cially Asia and Latin America. For 15 years I was a member of the Board of the Latin
American and Caribbean Association of Law and Economics. At its annual meetings,
I was able to witness how the field of research was spreading there as well. I found
it remarkable that when I first joined the Board, almost all the papers presented
were in English. By 2015, that had changed substantially. The only English-language
papers were those by authors from outside of the Spanish- and Portuguese-speaking
world. In India Claus and I gave a series of lectures for young scholars at the CESS
Institute in Hyderabad and the National Law School in Bangalore.
Towards the end of the 1980s, I met Hein Kötz, who had been the Director at
the Max Planck Institute for Comparative and International Private Law since 1987.
He had none of the widespread reservations about the new research field. In a
book that he co-authored with Konrad Zweigert and that has become one of the
most influential works on comparative law, being read around the world, Kötz had
argued that the solutions to hard legal cases found by supreme courts in various
legal systems are often very similar, even though the applicable structures, system-
atics, and doctrinal theories of law are very different. While working on the book, he
was at the University of Chicago in an office next to Richard Posner’s, who was then
working on the first edition of his “Economic Analysis of Law” and with whom Kötz
had discussed this “similarity hypothesis”. According to Kötz, Posner told him that
the reason for the similarity is that legal outcomes are driven not by concepts and
doctrines but by economic factors. Whatever one may think of the Zweigert/Kötz
theory of similarity – it evidenced Kötz’s undogmatic view of civil law and openness
to the economic analysis of law, as well as to all non-legal arguments, which was a
rare quality among German legal scholars. Besides Claus Ott, Hein Kötz became
my most important academic partner in discussion. For more than 20 years we
met almost every week for a leisurely lunch at the Hotel Elysee, talking mainly
about cases and problems of civil law. From time to time, we still meet today. Hein
Kötz was always interested in economic approaches and was prepared to put aside a
legal doctrinal position if an economic argument convinced him. And I gained civil
law knowledge at the highest level in these discussions. Almost by the way, these
conversations also led to joint publications. Over lunch, Kötz and I analyzed many
civil law cases from tort law, contract law, pre-contractual duties of disclosure, and
property law, and we almost always came to the conclusion that economic consider-
ation help to understand the cases and can be taken into account in supreme court
decisions to further develop the law. We later (2003) published some of these cases
with our economic comments in a book entitled “Judex oeconomicus”. Kötz also reg-
ularly attended the Travemünde Symposia on the Economic Analysis of Law, which
greatly benefited from his brilliant contributions.
7 The European Master in Law and Economics

(EMLE) in Hamburg
After the publication of our textbook, Claus Ott and I published a number of
articles, some in peer-reviewed English-language journals, some in German law
journals, and regularly attended the conferences of American and European law
and economics associations. These publications, together with the courses held in
Hamburg, contributed to the fact that our department came to be regarded as a
center of law and economics in Germany, and we received requests for cooperation
with foreign faculties. The Belgian civil law scholar and legal historian Boudewijn
Boukkaert, who teaches in Ghent, was one of the first European legal scholars to
engage in depth with the new research field and, together with Roger Van den Bergh
and Michael Faure, promoted it in Belgium and the Netherlands. He was so con-
vinced of the viability of this research that in 1990 he founded a postgraduate course
that also comprised legal and economic scholars from Cambridge, Rotterdam, Paris
and Madrid. This “European Master of Law and Economics” (EMLE) is a one-year
course divided into three terms, which the students spend at a minimum of two
different participating universities. In the first two terms, the students are taught
the basics of law and economics. In the third term, the partner universities offer
specialized programs, for example on intellectual property law, corporate law or
regulatory law.
This program owes its existence to the entrepreneurial spirit of Boudewijn
Boukkaert. At the outset, it would have been virtually impossible to have all partic-
ipating universities award the joint title “European Master in Law and Economics”
because this would have required not just difficult committee decisions by the
participating universities but also the approval of national authorities in most
countries. Boukkaert circumvented this problem by founding a private associa-
tion under Belgian law called the “European School of Law and Economics”. This
association comprised all the professors teaching in the program and issued a cer-
tificate to the students upon successful completion of their studies. That way, it
was possible to start the program if only enough teachers could be found in the
partner universities and enough students were interested in the program. In Ham-
burg, we received the offer to participate as a “third-term university” shortly after
the program’s foundation in 1992. As chance would have it, this occurred just as
the German universities were receiving additional federal funds. The University of
Hamburg reserved some of these funds for Europe-related activities. We success-
fully applied to the university for a share of these funds and received a 10-year
budget, from which we were able to pay an additional professor, five assistants,
guest researchers and external lectures. This allowed us to participate in the pro-
gram in all three terms and to increase the total number of students in the program
from 25 to 60 and later to 100. This gave the University of Hamburg a central position
in the EMLE program and at the time the only professorship for the “Economic Anal-
ysis of Law” in Europe. Roger Van den Bergh from Belgium was the first to hold that
position. When he was later called to our partner university in Rotterdam, Thomas
Eger succeeded him. Shortly thereafter, Claus Ott became the director of the entire
consortium of partner universities, and I became the local director of the program
in Hamburg. Ten years later, when the federal funding expired, the president of the
University of Hamburg, Jürgen Lüthje, saw to it that our budget continued in full.
For this he removed one professorial position from the economics department to
the law department. For us this was very welcome, but the Dean of the economics
department reacted with an annoyed comment.
8 Other Activities in Law and Economics

Since our textbook had sold out by 1992, Claus Ott and I used the summer term
of 1993 to prepare the 2nd edition. We had already met Robert Cooter and Daniel
Rubinfeld from Berkeley Law School at international conferences. They knew of
our plans, invited us to Berkeley, provided us with an office, and helped us where
they could, including accommodation in Berkeley. The German Research Founda-
tion financed a six-month working stay for both of us. The second edition was more
ambitious and detailed than the first. In Berkeley, we had the leisure to discuss
almost every aspect before writing the texts. Following the Berkeley stay, I received
an invitation from the Norwegian Academy of Sciences for an eight-month research
stay in Oslo, where I was able to get the second edition ready for print and write
more articles on the economic analysis of tort law. It was a productive time. The
second edition of the textbook was also successful. English and Chinese editions
followed. Today, the book has been on the market for 36 years and is in its sixth edi-
tion (2020). A second English edition was published in 2022. To younger colleagues
who are considering writing a book I can only recommend retaining the copyright
for foreign language editions if they can. This saves agonizingly long and compli-
cated negotiations later, always with the risk that the foreign-language edition will
never materialize.
Anthony Ogus (Manchester) and Robert Cooter (Berkeley), having served as
the long-time editors of the International Review of Law and Economics, offered
that Claus Ott and I take over their roles. For more than 15 years, until 2009, we
performed this editorial function in collaboration with Avery Katz (Columbia Uni-
versity). We were responsible for all submissions from outside of North America.
This was an interesting task, marred only by having to stand idly by and watch the
monopolistic practices of Elsevier Publishing. They increased the price of an annual
library subscription by a factor of six within the space of a few years. The pub-
lisher had realized that the elasticity of demand for established scientific journals
was very low because well-known specialized libraries that heeded their reputation
could not afford to cancel them even if the price rose sharply. In fact, sales numbers
of the International Review of Law and Economics to libraries fell by less than 10
percent despite this price increase. Elsevier felt its way to the Cournot monopoly
price for many of its several thousand journals and made billions. Such monopolis-
tic practices have led to a discussion which continues today as to whether academic
publishing should be organized in a completely different way.
In 2000, on the recommendation of Francesco Parisi, who was teaching there at
the time, George Mason University School of Law in Arlington (now Scalia School of
Law) offered me a visiting professorship. In later years Dean Mark Grady upgraded
this to the position of “distinguished visiting professor”. For more than 10 years,
during the first half of each winter semester, from late August to October, I lectured
either on economic aspects of European law or on the relationship between law
and economic development. I enjoyed this time very much, not least because of
the intense culture of debate. Although I disagreed with the radical libertarian and
unfettered market spirit that prevailed there, I admired the intellectually stimulat-
ing climate and debates. Every week, a faculty member or someone from outside
presented their research in a colloquium. In addition, there was a weekly law and
economics workshop, which about half of the faculty members attended. The dis-
cussions were often fierce. Gordon Tullock, who along with James Buchanan is one
of the fathers of public choice theory and modern social contract theory, was on
the law faculty and known a redoubtable debater. What I found most remarkable
was that the debates crossed disciplinary boundaries within law. That a criminal
lawyer should attack the views of a civil lawyer and vice versa would be almost
unthinkable in Germany but occurs quite naturally in the United States. I have held
guest professorships at many universities around the world. In my experience, the
intensity and lack of preconditions for academic discussions among colleagues is
an unmistakable sign of a faculty’s academic excellence.
Arlington is where many of my English-language papers or the ideas behind
them originated. I attribute this to the many discussions I had with colleagues such
as Francesco Parisi, Lloyd Cohen, Daniel Polsby, and Nuno Garoupa, all of whom
worked in the field of law and economics. I also had interesting conversations with
Dean Mark Grady and with Gordon Tullock, who at the time was working on social
organization among ants. While he was quite gracious to me personally, he was also
known to be rather rude at times. When the Governor of Virginia once visited the
Law School, the Dean took him to meet the most famous researcher on the faculty.
Legend has it that the Governor asked Tullock if there was anything he could do for
him, to which the latter replied that his air conditioner was not working properly
– could the Governor fix that?
On September 11, 2001, I was in my office in Arlington and had a 10 a.m. class. I
went to the lecture room a few minutes before and saw 2 secretaries holding radios
to their heads. When I asked them what was going on, they said that there had
been an explosion at the World Trade Center in New York. I kept walking. One of
my female students came up to me and said she was scared. A plane had crashed
into the Pentagon. She led me to the window, from where a column of smoke could
be seen in the direction of the Pentagon. Not knowing whether to give my lecture, I
went to the dean’s office, but he was sitting in a chair in the hallway, not in his office,
with his head between his hands and staring straight ahead. Later, I walked to the
subway to make the two stops to my apartment and family in Falls Church further
outside Washington. All the stores were already closed. Handwritten notes gave the
reason, “due to current events.” A police officer said to me that there were attacks
with airplanes. More attacks were to be expected. He told me to get home as soon as
possible. The trains from Washington were completely overcrowded. People were
fleeing the city by all means of transportation and in all directions because they
feared further attacks. Finally, I got a standing room in the completely overcrowded
subway, where stoic silence and discipline prevailed. Not a loud word was heard,
nor were any abrupt or nervous movements seen. It took several days for the mood
to change, and American flags of all sizes were hoisted everywhere.
While in the US, I kept in touch with the economists at Berkely Law School,
especially Robert Cooter. We shared a biographical fact: I had not started my aca-
demic career as a law and economics scholar but had focused on development
economics and published on “urban bias”, the politically motivated disadvantage of
the agricultural sector in the development process. Bob Cooter had started out as an
anthropologist. One of his first papers dealt with the legal status of the agricultural
land of indigenous tribes in Papua New Guinea. Cooter had found that Papuan land
ownership rights were extremely complex compared to modern absolute rights
such as private property. For example, the members of a pastoral tribe had the
right to graze their cattle on the crop farmers’ fields every 10 years. This right was
not based on contractual agreements but was a quasi-property right. Cooter also
recognized that such in rem rights work only in small societies and must yield to sim-
pler norms as societies become larger, more specialized, and more anonymous. For
property rights, unlike contractual rights, oblige any third party to observe them.
Therefore, modern absolute rights tend to be easily understood even without know-
ing the context, for example by relying on a simple “hands off” rule. Bob Cooter, who
knew my background, offered to write a book together on law and economic devel-
opment. This was most welcome, and it allowed both of us to return to our roots.
A period of extensive discussions began. I suggested Cooter for the Alexander von
Humboldt Research Award, which he received, and which enabled him to come to
Hamburg for several months, where we worked together every day. Later, I also
traveled to Berkeley for several months. In 2012, our joint book was published by
Princeton University Press, entitled “Solomon’s Knot: How Law Can End the Poverty
of Nations.” “Solomon’s Knot”, an iconic symbol of fruitful and trusting coopera-
tion, points to a dilemma: Economic development depends on entrepreneurs with
business ideas finding investors to fund those ideas. This potentially very fruitful
relationship can be exploited opportunistically by both parties and by third parties,

so that investments do not materialize, and business ideas do not come to fruition.
Law or effective substitutes for formal legal norms can eliminate or mitigate this
dilemma.
9 Two Guiding Stars, Amartya Sen and Rudolph

von Jhering
My academic career would not have been possible without the close collabora-
tion with other scholars. In this context, I would also like to mention my long-time
office neighbor Ronald Randzio, who besides his professorship was also a half time
judge at the Hamburg Regional Court and whom I often disturbed with questions
about legal cases and problems, which he answered with infinite patience. These
colleagues allowed me to access civil law in a fashion that would not have been
available to me through self-study alone.
My mention of other scholars would not be complete if I failed to mention two
more names, one of whom I know only distantly and the other I have never had the
opportunity to meet: the Indian American economist and philosopher Amartya Sen
and the German jurist Rudolf von Jhering (1818–1892).
Amartya Sen is world famous for his writings on welfare, freedom, social jus-
tice, and equal capabilities. I already followed his writings when I was a research
assistant in Bochum and Sen was dealing with central and much discussed ques-
tions of development economics. He was already well known in the close circles of
development economists since his doctoral dissertation on “Choice of Technology”,
which he wrote at the University of Cambridge (England). Only later did he research
the basic issues of collective choice and also presented a new explanation for the
causes of famine that contrasted sharply with conventional and intuitive ideas. I
have studied his writings through the decades. Sen long defended utilitarianism as
a theory of social welfare because he realized the tremendous cost that abandoning
this concept would have on a progressive theory of economic policy. Utilitarian-
ism views social welfare as the sum of individual utilities. Together with the law
of diminishing marginal utility of income, this theory leads to a concept of social
welfare in which large income inequality is detrimental to social welfare. Utilitari-
anism assumes not only that everyone’s welfare can be expressed as a number, but
also that these numbers can be added up and that the sum is a result that can be
meaningfully interpreted. Especially the last point, the interpersonal comparability
of utility, has been widely criticized. Sen has never denied the information prob-
lems of utilitarian social decision-making but has considered them surmountable
and has shied away from abandoning utilitarianism in favor of the pure efficiency
criterion, which does not require adding utility values. For the latter implies aban-
doning philosophically justifiable statements about distributive justice. If interper-
sonal utility comparisons are rejected, there is no welfarist philosophical basis for
the claim that one must help a starving person if the only way to do so is to take
something away from a rich person. This decision must then be entrusted to a
social decision-making mechanism alone, such as a majority vote, with each out-
come being equally good from a philosophical standpoint. Also, utilitarianism is not
haunted by the well-known problems of the Arrow impossibility theorem of aggre-
gating individual to social welfare. Sen, along with many others but by no means
most economists, rejected this outcome and insisted on the possibility of interper-
sonal utility comparisons with what he called the extended sympathy approach.
It took decades for Sen to distance himself from utilitarianism and those other
social-ethical theories, which postulate that social welfare should be determined
exclusively based on individual welfare (welfarism). Instead, Sen developed his
own theory, according to which the most urgent social policy task is to ensure equal
capabilities.
Crucial to Sen’s eventual departure from the welfarism were certain social
decision outcomes created by that concept, which raise the question of whether
the common good depends exclusively on information about the welfare (utility) of
the members of society as assessed by themselves. This welfarist requirement has
rarely been questioned by economists, but it does raise certain problems. Suppose
a government budget can only be spent either on subsidizing an opera house or
to help a group of severely disabled people. Now if the beneficiaries of the opera
subsidy are great music enthusiasts and the disabled cannot really enjoy their lives
anyway because of their disability, the utilitarian and welfarist conception of the
common good requires that the opera house be subsidized. Sen was not prepared
to accept such results of welfarism and therefore developed a new theory in which
more objective factors than the mere aggregate utility of the members of soci-
ety determine social welfare. Instead of individual welfare (utility), he focused on
capabilities, which should be as equal as possible.
The 19th century jurist Rudolf von Jhering in turn impressed and encour-
aged me more than he influenced me. I know only parts of his work, which
have, however, instilled in me the greatest admiration. In preparation for the first
Travemünde conference on the economic analysis of law, I read his paper “Culpa
in Contrahendo” (1861). It begins with a hard case from the time of the introduc-
tion of telegraphy, which then caused a similar hype as the internet does today.
One no longer needed retail shops but could instead order everything directly from
the manufacturer by telegram. In this case, a German citizen had ordered cigars
by telegram, the quantity being designated as a “Kasten” – a small box, holding
about 20 cigars. However, the text was garbled on the way to the recipient, who
saw an order for a “Kiste” of cigars – a large box, containing about 2000. Knowing
about the unreliability of this new technology, the postal service had excluded any
liability for transmission errors. The cigar company delivered the large box. The
customer, expecting a small box, paid no heed to this delivery, caring neither about
the humidity spoiling the cigars on his doorstep nor about the invoices and payment
reminders that the supplier sent. When the company claimed damages from him,
he argued that no contract had been concluded and that consequently there was
no contractual claim. Nor was there a claim in tort because no-one incurs a duty of
conduct as a result of someone else placing something on his doorstep unasked. Von
Jhering critically examined the doctrinal positions that had been assumed regard-
ing this much-discussed case. He argued that only the sender of the telegram, if
anyone, could have avoided the potential harm. His argument, albeit implicitly, was
based on the concept of the “cheapest cost avoider”, as popularized much later by
Calabresi. Von Jhering also argued that when the telegram was sent, the contract
that failed to be concluded could already trigger a legal duty, even though it existed
only as a possibility. I found this quite impressive and entirely consistent with eco-
nomic thinking. Later I read that the legal concept of “culpa in contrahendo” that
von Jhering had developed was over time introduced in more than 70 jurisdic-
tions around the world, including in the “common law” country USA, to which the
aforementioned Fritz Kessler contributed significantly.
The second example from von Jhering’s writings is even more impressive for
an economist. In the 1860s, the most important, if not the only, environmental
norm against pollution was the injunction of the landowner (actio negatoria). This
was then a “property rule” in the terminology of one of the most widely cited law
and economics papers by Calabresi and Melamed. These two authors argued that
such injunctive rights must in principle take precedence over claims for damages
because they guarantee that the victim will only accept the injury if the polluter
compensates him with a sum that is at least as high as his subjectively perceived
damage. This guarantees that rights to resources will go to those who value them
most. This was precisely the argument of von Jhering, who criticized the acts of
pollution as coercive servitudes and demanded that the factory owners acquire
servitudes from the affected property owners who sanction the pollution, or they
must buy all potentially polluted property in the vicinity or retreat into seclusion.
Calabresi and Melamed argue, however, that sometimes the defensive right should
be replaced with an entitlement to damage compensation, namely when transac-
tion costs are prohibitively high and thus market forces are too weak for a voluntary
transfer of property rights. This was also von Jhering’s thought once he saw that a
market for pollution rights entailed excessive transaction costs and that the pure
right of defense hindered industrial and economic development in Germany. He
then advocated solutions for damages and influenced further case law, in which
differentiated, and more efficient results were achieved using the concept of local-
ity, where pollution sometimes triggers a right of defense, sometimes only leads
to a claim for damages, and sometimes gives the victim no claims at all. Thus, in
my view, von Jhering anticipated both the Coase theorem and the basic Calabresi-
Melamed proposal. In the second English edition of the textbook on the Economic
Analysis of Law (2022, pp. 540), I have attempted to pay tribute to von Jhering for
this pioneering work, which predated essential insights of economic analysis by 100
years. In the light of von Jhering’s writings, it baffles me why an economic analysis
of law in Germany did not emerge on this basis as early as the 19th century. Perhaps
it has to do with the fact that economics in Germany at that time was dominated by
the historical school, whose achievements are undeniable, but which marginalized
the analytical, model-theoretical economics that is indispensable for the explicit
formulation of such insights.
10 At the United Faculty of Law of Hamburg

University
In 1998, the two law faculties in Hamburg were merged. This was a direct con-
sequence of a political decision that had already been taken in 1984, when the
federal legislator deleted the experimental clause from the German Judiciary Act
and thus put an end to the single-stage legal education, a decision that our entire
faculty deplored. The decision lacked all meaningful scientific evaluation of the
model experiments and was purely politically motivated – at the time, the bal-
ance of power in the German Parliament had shifted in favor of the traditional-
ists among the lawyers, who saw no need for educational reform. The Hamburg
State Ministry of Science did not exert any pressure on the two faculties to merge
but made it clear that only limited funding was available for legal education at
the University of Hamburg. This led to a rapid learning process among the col-
leagues in both faculties. It would no longer be possible to offer the same range
of teaching specializations within a single faculty. Relations between the two fac-
ulties had not been friendly for a long time. Now, however, the impetus to merge
came not from the state administration but from among the professors in both fac-
ulties as an insight into the necessity. Before the negotiations on the merger began,
Claus Ott surprised me by proposing that all the existing activities in law and eco-
nomics at the Department of Law II be combined in a newly formed institute, which
would then be an independent organizational unit of the merged department. This
would prevent a fragmentation of responsibility in the area of law and economics
after the merger. This plan required a decision by the Faculty Council of Law II,
which had reservations not just regarding law and economics but also regarding
institutes in general, which some colleagues considered authoritarian because of

their hierarchical structure. At the decisive meeting, Claus Ott gave a brilliant
speech in support of the proposal to establish the Institute of Law and Economics.
The motion was passed with a one-vote majority. Shortly thereafter, negotiations on
the merger of the two law faculties began and were quickly concluded in a collegial
spirit. The Institute of Law and Economics continued as established.
I had expected reservations against law and economics in the unified faculty,
but in decision making processes there were none – quite the contrary. As the Ham-
burg director of EMLE, it was my task to ensure that the program was allowed to
award a master’s degree or LL.M. – back then, the graduates still received a cer-
tificate from the Belgian association. The reader is reminded that LL.M. stands for
“legum legum magister” – the master of both Roman and canon law. Ensuring this
was not an easy feat, especially since the program admitted not only graduates in
law but also economists and occasionally social scientists with little knowledge of
the law, if any. The faculty council had to agree to this. The decisive factor, however,
was the view in a professorial meeting. I explained that at that time several law fac-
ulties in Europe already awarded LL.M. degrees in, for example, medical law, even
though those programs were also open to non-lawyers, and that an LL.M. degree
for non-lawyers was therefore nothing fundamentally new. None of my colleagues
objected, and the motion later passed smoothly in the faculty council. Opposition
did however come from the state administration, where officials recommended that
the Science Secretary deny awarding an LL.M. because the EMLE course took not
three semesters, as required by the Higher Education Act, but only three trimesters.
This matter dragged on until the Secretary finally agreed, overriding the objections.
I had a similar experience later when I became director of the overall EMLE pro-
gram and problems arose with our new partner universities in Poland and in India.
In the case of the Indira Gandhi Institute in Mumbai, which is financed and man-
aged by the Reserve Bank of India, questions arose regarding the conditions under
which an Indian economic institution could award a “European Master in Law and
Economics”. We were eventually able to solve those problems because there was an
understanding in the university administrations and responsible ministries that it
is hardly possible to involve several universities from different countries in a joint
study program with a degree that fully meets all legal requirements in each country.
Such problems could be solved in many but not all cases. And the reward for solv-
ing the problems was rich. Roger van den Bergh, the local coordinator in Rotterdam
became very active and very successful in applying for funds from Brussels. The
European Commission ranked EMLE together with 10 others as one of the best Mas-
ter programs in the EU, and paid generous scholarships, a support that continues
to this day and was recently prolonged for another 8 years period.
After the merger of the two law faculties, I applied to the German Research
Foundation for funding to establish a graduate school on “New Forms of Private
Law Cooperation and Civil Liability” with the necessary support of the faculty. The
application was approved, and that really made the Hamburg law faculty the center
of law and economics in Germany. It now offered a master’s degree and a struc-
tured doctoral program with scholarships, and we had the funds to invite almost
all the well-known researchers in this field – especially from the USA – for lectures
and talks. Colleagues from the faculty of economics and directors of the Max Planck
Institute were also involved as PhD supervisors. Over the years, the number of law
and economics researchers in Hamburg had grown to such an extent that Ham-
burg became a natural location for such a school. In addition, for several years
we received funding from a special program by the German Academic Exchange
Service for foreign doctoral students who came to Hamburg for a few months as
visiting scholars to participate in discussions and various events. The graduate
school, whose spokesperson I was from 1999 to 2008, became a successful training
ground for young researchers. 11 of the doctoral students and postdocs supported by
the school are now professors at German and European universities, in Israel and
China. During the initial review process, the German Research Foundation had indi-
cated that some of the reviewers found the program interesting but were concerned
whether the doctoral students would be able to hold their own on the academic job
market with an interdisciplinary doctoral thesis. These concerns were no longer
raised during subsequent reviews. It later turned out that the graduate school had
performed very well in this regard.
The Hamburg law faculty was also open to admitting doctoral students who
had not passed a German state examination. My first doctoral student in the unified
faculty, a Chinese lawyer who is now a professor at Shanghai International Studies
University, still had to pass three major sit exams on German civil, administrative,
and criminal law in German language before being admitted as a doctoral student.
Later, much more flexible rules were introduced. Reinhard Bork was the chairman
of the doctoral committee for many years and would probably not mind be called
a classical lawyer. Yet he developed great understanding for new developments. He
often helped me, for example, when in 2008 we joined the “European Doctorate in
Law and Economics” in cooperation with the universities of Bologna, department of
economics and Rotterdam, department of law. The program is open to economists
and lawyers, who wish to pursue PhD studies at all three locations. Each participat-
ing university awards the doctoral degree to each graduate according to the local
doctoral regulations (so-called multiple degree). The solution was a sui generis doc-
torate, the “Doctor of Law and Economics”, which can be awarded either by the
Faculty of Law or the Faculty of Economics and Social Sciences in Hamburg. The pro-
gram has thrived since our accession in 2008, thanks not least to financial support
from the European Commission. By 2019, a total of 12 professors at law or economics

departments around the world had emerged from it.
The law faculty also supported me when, following Claus Ott’s retirement, I
applied for the introduction of a focus program in law and economics. Until 2005,
when the new specialization program was established, the subject had only been
taught as part of the focus on commercial law. The faculty also planned ahead
in terms of personnel, deciding to keep the position of the Director of the Insti-
tute of Administrative Science vacant for my successor at the Institute of Law and
Economics. That way, the faculty was later able to fill the position with a highly
qualified scholar. These and other far-sighted decisions broadened the scope of
the Institute and secured its future in research and teaching. They also helped to
later attract Anne van Aaken, a well-known younger law and economics researcher
in St. Gallen, to the Institute to continue her research in behavioral law and eco-
nomics in Hamburg. She was awarded the generously endowed Alexander von
Humboldt Professorship and brought several million euro of external funding to the
Institute.
Recalling the general role of the Hamburg law faculty in establishing a center
for the economic analysis of law, I am full of gratitude, while of course there was
also room for aggravation about individual decisions. But when this line of research
began in Germany, some younger scholars who sought to achieve similar things at
their universities failed. Without hiding my light under a bushel, I can say that a fac-
ulty like the single-stage law school and later the unified department of law greatly
helped in this regard. In the single-stage law school, there was a climate of efferves-
cent and even exuberant enthusiasm for interdisciplinary legal research, without
which I probably would not have become so deeply engaged in the economic analy-
sis of law and in the study of law. The unified law faculty later set the course for the
consolidation and further development of the Institute of Law and Economics with
far-reaching structural decisions on research, teaching and staffing. Today, with
the exception of the Max Planck Institute in Bonn under the direction of Christoph
Engel, there is no academic institution in Germany or in Europe that conducts this
line of research with the same intensity and conveys it in its teaching.
11 Recent Developments
Over the last two decades, law and economics research has changed considerably. It
has become more psychological and empirical. Until the 1990s, the most important
publications were applications of economic concepts and models to legal norms.
Under the influence of behavioral research initiated by the economist Kahneman
and the psychologist Tversky from Israel, this changed greatly. Hundreds of studies
emerged showing that in laboratory experiments, people’s decision-making system-

atically deviated from the axioms of rational behavior and that people are more
easily manipulated than economic theory and rational choice theory had generally
assumed. These insights also yielded legal proposals that seek to realize socially
desirable behavior without material incentives, i.e., through so-called ‘nudging’.
The Institute of Law and Economics in Hamburg was not much involved in this
research until the legal scholar and economist Anne van Aaken was appointed to
a chair in “Law and Economics” in 2012. In Germany, the Max Planck Institute in
Bonn, headed by Christoph Engel, has much contributed to this research. The impor-
tance of this research for economics in general and for research on the effects of
legal norms remains controversial. The greater their importance, the more it seems
justified to correct the irrational decisions of individuals by mild forms of paternal-
ism. A mediating position is to principally rely on the rational choice model for
the analysis of legal norms, but to reject it in favor of a psychologically informed
analysis when tangible evidence from behavioral economics suggests this. It is how-
ever inconsistent to fundamentally assume that human beings are inherently irra-
tional and unable to make reasonable, comprehensible, and justifiable decisions
and, at the same time, to praise private autonomy as the highest good of the legal
order.
Law and economics today is also much more empirically oriented than it was in
the beginning, although empirical work has always been an important part of this
research. Especially in comparative legal research, the use of econometric methods
has enabled important insights in many areas. It seems to me that the reliability
of empirical research has also improved thanks to new methods. For econometric
analysis, all processed information must be coded as numbers. Legal scholars have
often struggled with this, and econometricians have often lacked comprehensive
and systematic knowledge of the legal matters they were studying. As a result, their
precise methods sometimes produced incorrect results. I pick out only one spectac-
ular result by La Porta, López-de-Silanes, Shleifer and Vishny, according to which
American corporate law is far superior to that of continental European countries.
The underlying theory is that portfolio investors are better protected by rules that
limit the arbitrariness of management (antidirector rights). This leads to a more effi-
cient use of the resources tied up in the company and better prevents exploitative
practices by managers and powerful major shareholders at the expense of portfolio
investors. These results were based on a coding that closely followed the legal texts
and thus failed to take into account the influences of the legal system, legal doc-
trine and important supreme court decisions in civil law countries. When expert
legal scholars were finally brought in and the coding was changed, it turned out
that the original results of the superiority of American or Anglo-Saxon corporate
law could not generally be reproduced.
In my opinion, it is therefore deplorable how little comparative law research in

Germany makes use of state-of-the-art statistical methods. Even very open-minded
legal scholars often only use descriptive statistics if any. More interdisciplinary
teamwork is needed here. I see the risk that substantial parts of crucial legal
research in Europe will in the future be conducted outside of the law departments,
and I would like to illustrate this assessment with a personal experience. More than
10 years ago, I gave a talk on “law and development” at the World Bank in Washing-
ton. Like other similar organizations, the World Bank had in the 1990s recognized
the centrality of law and substitutes for formal law to economic development. The
research departments began collecting data on contract, property, commercial and
corporate law on an unprecedented scale. This yielded econometric comparative
law research which concluded that common law was conducive to economic devel-
opment, while civil law, especially the French code civil, impeded development.
This argument played a role in the discussion of my presentation. I was surprised
that almost everyone present was firmly convinced of this, and they were even
advising developing countries to replace the supposedly development-hampering
code civil with common law-style judge-made law. These were economists who
had read the relevant literature. I recall only one French jurist who rejected the
hypothesis of the negative development effects of French civil law but was unable
to comment on the methodological shortcomings of these studies. There are not
enough comparative law scholars who are able to professionally question and crit-
icize the results of such studies or come up with more reliable results themselves.
Thus the present state of comparative law includes the Zweigert Kötz hypothesis
according to which there exists not much difference in private law across coun-
tries, and the research results of La Porta, López-de-Silanes, Shleifer and Vishny,
and others that common law is conducive to economic development, whereas civil
law, especially French civil law is a path to economic backwardness. Comparative
lawyers in Europe tend to reject this as wrong without having the methodologi-
cal skills to do so. It is obvious that two such opposing propositions cannot coexist
for long. Presently it does not seem that classical comparative law scholarship can
contribute much to this debate of outstanding theoretical and political importance.
This is not so much true of American law schools as of European law schools, which
often do not sufficiently value sophisticated empirical research methods. I know of
three younger law scholars, fully qualified lawyers from Germany, Italy, and Taiwan
(where German civil law plays a prominent role), who have acquired statistical and
econometric skills at great expense and in addition to their very extensive legal and
comparative law training, and who have recently accepted calls to the law schools
of Columbia University, Cornell University, and Harvard University, respectively. It
is precisely legal scholars like them who should be made attractive offers to induce
them to stay in their home countries.
12 At Bucerius Law School

Shortly before my mandatory retirement from active service at the University of
Hamburg in October 2008, I was quite unexpectedly asked by the private Bucerius
Law School in Hamburg whether I would like to join them as an Affiliate Profes-
sor. I gladly accepted and have been working at Bucerius Law School since 2009,
teaching three courses a year. For five years I coordinated the non-law courses. Dur-
ing that time, I introduced an economics certificate, which is awarded along with
the bachelor’s degree to students who complete a total of six economics courses
and pass the associated exams. About a third of the students take advantage of
this opportunity. In 2016, I became the head of a committee to make proposals to
promote interdisciplinary research at the law school. This was a particular con-
cern of our president Katharina Boele-Woelki. The commission’s proposals led to
the establishment of a special program with a budget to be used for interdisci-
plinary research. The funding goes to research projects conducted by scholars from
Bucerius Law School in cooperation with external researchers from other disci-
plines. The latter are given the opportunity to come to Bucerius Law School as
Visiting Research Professors and to produce joint interdisciplinary publications
with local colleagues, without any teaching obligations. Funding is also provided
for interdisciplinary workshops that comprise legal scholars and representatives of
other disciplines and which lead to a publication. I chaired this program, which has
yielded many joint interdisciplinary publications by law and social science scholars,
for five years until February 2022.
13 A Plea for More Interdisciplinary Legal

Research
For the deliberations in the interdisciplinary committee at Bucerius Law School, I
conducted some online research and was surprised by the extent to which interdis-
ciplinary legal research has grown and become institutionalized around the world
over the last couple of decades. At that time, I found 34 law-related institutes and
research centers founded between 1990 and 2016 where legal scholars collaborate
with representatives of other disciplines. They tend to be called Law and Economics,
Law and Public Policy, Law and Business, Law and Society, and such like. Today,
besides economists, the scholars involved are often political scientists, sociologists,
social scientists, historians, computer scientists, and philosophers. Publications are
often the joint work of two or more authors, incorporating different methodolog-
ical and professional skills. Empirical research that relies on the analysis of “big
data” with millions of pieces of information is also on the rise. This is a worldwide
process that can be observed especially in highly ranked universities in North

America, Great Britain and East Asia, and less so in Germany and continental
Europe. To make a small case in point, I once counted the number of publications
with more than one author that were published in the Archiv für die civilistische
Praxis, a prestigious German law journal, over a ten-year period. I came up with
three. In the Journal of Law and Economics, the figure was more than 100.
Many factors hinder interdisciplinary legal research in Germany. Doctrinal
legal work is too strongly rewarded in the recruitment of academic staff. Some of
the most promising younger scholars in my research area in Europe have had diffi-
culty obtaining adequate positions in their home countries and have instead gone to
the U.S., where an economist or social scientist with an interdisciplinary economic
doctorate can apply for a law professorship if he or she completes a three-year law
degree (JD). Fritz Kessler, whom I mentioned earlier, one of the most influential legal
scholars in the U.S. in the 1950s and 1960s, had passed both German state exams,
completed a dissertation and published a few papers when he fled the Nazis and
tried to get a foothold at Yale University. He told me the dean simply asked him to
teach the common law course next semester. Such a thing would be unthinkable in
the reverse case, either then or now.
If law faculties in Germany want to promote interdisciplinary work in research
and teaching, they must appoint either non-law professors who, however, cannot
hold core courses, or law professors who are strongly involved with neighboring
sciences. However, there are insufficient incentives for the latter. While an applicant
may get extra points if her venia legendi also includes the subject of law and eco-
nomics or legal sociology, publications of methodologically demanding and time-
consuming interdisciplinary articles in respected international journals are hardly
rewarded. Under these conditions, a German Guido Calabresi or Richard Posner is
unlikely to emerge any time soon. Both of them, as young legal scholars, spent a
great deal of time and effort immersing themselves in economics and harnessing
it for their research. This never made them outsiders, quite the contrary. Calabresi
quickly became well known in the U.S. and internationally, then dean of Yale Law
School and later a federal judge, similarly to Richard Posner. Calabresi told me that
in the late 1960s he gave a lecture at the Max Planck Institute in Hamburg on his
unfinished research project, “The Cost of Accidents”, when Konrad Zweigert was
its director. At the end of the event, Zweigert told him that the lecture had been
very interesting but had nothing to do with law. Calabresi returned, “Maybe not yet
today, but it will in the future.” In Germany, Calabresi’s work would have made him
an outsider.
In the 1960s and early 70s, the renowned Italian commercial law scholar Pietro
Trimarchi published a series of articles in Italian and German that contained, inde-
pendently of the parallel developments in the USA, central early results in law
and economics. I became aware of him through a German-language publications,

which I used in the textbook on the economic analysis of civil law. Trimarchi once
told me how those early papers came about. As a young professor, he taught law
to economists and felt that he had to offer them something that matched their
understanding. That way, he arrived at law and economics insights entirely on his
own. Calabresi, who is from an Italian immigrant family, knew all of Trimarchi’s
writings. He was full of admiration for that work and found it incomprehensible
that it remained almost unknown. Had Trimarchi lived in the USA and published
there, he would have been a well-known scholar instantly. As president of the Euro-
pean Association of Law and Economics, I later insisted that Trimarchi receive the
Association’s first scholar prize. For this I was criticized by some colleagues because
Trimarchi’s writings on law and economics had remained largely unknown, his
reputation in Italy resting only on his subsequent classical legal writings.
It is possible to change the incentives for young law graduates in Germany
and the EU, too. This requires not legal or institutional reforms but a rethinking of
habilitation and appointment committees. Their members should be more aware
of how interdisciplinary the most relevant writings in law have become. They
should specifically look for applicants whose work demonstrates a professional
use of research results and methods from neighboring disciplines. Easy access for
economists and social scientists to law chairs, which is possible in the USA following
completion of a three-year law degree, is unlikely to happen in Germany, much as
it is to be desired. It is, however, possible to have such scholars teach in focus pro-
grams, as for example at the law school of the University of Hamburg. In the USA,
too, the economics-trained, second generation of law and economics scholars, such
as Robert Cooter, Steven Shavell and Mitchell Polinsky, were professors not of law
but of “Law and Economics”.
14 Looking Back
My career owes much to a coincidence. As an economist, I became a part of the
single-stage legal education in Hamburg, where the “integration of law and social
sciences” had an almost axiomatic status, forcing me to take a closer look at this
scientific program, its justifications and contents. I had colleagues such as Rainer
Walz and Michael Adams who quickly drew my attention to law and economics,
of which I had not heard before. In the civil lawyers Claus Ott and Hein Kötz and
the economist Robert Cooter, I had colleagues who were willing to engage in hun-
dreds of extended technical discussions with me. This was a privilege without which
many publications would not have arisen. I was also fortunate to be involved with
this new discipline at a point when it was on a steep upswing, which made it easier
to attract external funding. The single-stage legal education in Hamburg ultimately

remained an episode. While after the merger of the two law departments in Ham-
burg I was mostly involved with “classical” lawyers, the faculty made far-reaching
decisions about staff structure, the recognition of interdisciplinary courses, a law
and economics focus program, and an international and interdisciplinary doctoral
program. These helped to expand and consolidate the activities of the Institute of
Law and Economics, which Claus Ott and I had already initiated back in the days of
the single-stage legal education.
In 2013, the annual meeting of the European Association of Law and Economics
was held in Warsaw, and I was made an honorary member of the Polish Law and
Economics Association. When I received the award, I thought of my father, who
had marched through Warsaw, headed for Russia, as a prisoner of war in 1945.
He later told me that the city was not ruins, but rubble, and that it would be 100
years before Germany could again have any sort of civil or even friendly relations
with Poland. He would probably have been pleased with this honorary member-
ship, even though he would have preferred me to become a tailor and take over the
family business, as he had from his father.

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Rev. Law Econ.

2023; 19(2): 115–150

Abstract: After studies of economics and business administration in Cologne my

*Corresponding author: Professor, Hans-Bernd Schäfer, Emeritus of Economics, University of

JEL Classification: K00, A12, A13, A20

1 School Years in Bottrop, Germany

2 Studying Economics at Cologne University

excellent presentation of the principle of proportionality. Jahrreiß strongly rejected

3 Bank Employee in Frankfurt, Research Fellow in

virtually no growth theory that analyzed the deeper roots of underdevelopment

4 Single-Stage Legal Education in Hamburg

5 Consumer Protection Law as a Correction of

damages. Consumers reacted to this with a withholding of purchase, punishing the

6 Focusing on the Economic Analysis of Law

institutional economics organized by Rudolf Richter from Saarbrücken, which was

7 The European Master in Law and Economics

8 Other Activities in Law and Economics

relationship can be exploited opportunistically by both parties and by third parties,

9 Two Guiding Stars, Amartya Sen and Rudolph

10 At the United Faculty of Law of Hamburg

institutes in general, which some colleagues considered authoritarian because of

from the European Commission. By 2019, a total of 12 professors at law or economics

emerged showing that in laboratory experiments, people’s decision-making system-

In my opinion, it is therefore deplorable how little comparative law research in

12 At Bucerius Law School

13 A Plea for More Interdisciplinary Legal

process that can be observed especially in highly ranked universities in North

and economics. I became aware of him through a German-language publications,

to attract external funding. The single-stage legal education in Hamburg ultimately

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