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Research Fellow at the Notre Dame Center for Ethics and a. Tribal society
c. Liberal society
of ‘legal liberalism’. According to him, the latter category, much (2) Three basic problems of human association which these
promoted by Unger and others in the Movement, is not a safe forms of society deal with:
description of the rights and rule of law that Price wishes to a. Distribution of individuals among significant
defend against CLS antipathy and subversion. Indeed, groups
‘liberalism’ is not a term fit for use in doing legal or political b. Character of their relations to each other as
theory, as the example of Aristotle and Aquinas suggests; nor insiders or strangers
a. Legal liberalism – a category, or term, much c. Way people understand the relationship between
promoted, if not invented, by the CLS movement what is and what ought to be
(Sections I to III)
(3) Central theme of consciousness and existence in liberal
! Accepted much of the CLS claim about ‘contradictions society is a peculiar set of interdependencies among
within the law and legal doctrine’ (Section IV)
three factors:
(1) Positions central to liberalism are shared by conservatives b. disappearance of a sharp distinction between
(Price).
strangers and outsiders
c. Participates in the life of the law not as official a. Legal order - the type of law which is responsive
but precisely as citizen
to the ideal of the rule of law, law ‘committed to
(3) Author’s criticism:
being general and autonomous as well as
a. If individual rights and the rule of law are the public and positive’
maintains, and if the representative founding i. the rules formulated and enforced by a
fathers of liberalism are Locke and Blackstone, government cannot be persuasively
as he also says, then the presence of such ideas analyzed as a mere restatement of any
many centuries before Locke should make us identifiable set of nonlegal beliefs on
reluctant to accept the CLS claim that the norms, be they economic, political, or
alternative to CLS ideals is legal liberalism.
religious’
b. We should conduct our conversations about ii. its rules are applied by specialized
rights and the rule of law without using the institutions whose main task is
term ‘liberalism’, or any other relativizing adjudication
term, at all.
iii. ways of justifying their acts differ from
c. CLS is a threat, not to liberalism, but to the ways used in other disciplines and
human rights (particularly the rights of the practices
vulnerable) and to the Rule of Law — that it iv. there is a special group, the legal
neglects or contemns or undermines, not an profession, manipulating the rules,
opinion or doctrine, however popular and staffing these institutions, and
fundamental to our society, but some important engaging in legal argumentation
SECTION III:
SECTION IV:
turn away from strict assumptions of neoclassical ! Functionalism of the Virginia school: Based on the
models. Their outcomes affect organisations, public choice theory. Public choice theory, in turn, is
households, individuals and states.
focused on non-market mechanisms of making
! Effects of market failures are multidimensional and may decisions or economic analysis of politics (Wilkin,
have both economic, sociological, or psychological 2005).
character.
o Another key assumption of functional
! Such market events relate to regulation. Sometimes approach is normative individualism. It means
suboptimal regulation leads to crises.
that the analysis of law is in this context based
on investigation of the structure of institutional
LITERATURE REVIEW
incentives (Parisi, 2004).
2000).
resources (Bełdowski & Metelska-Szaniawska, ! Theoretical approach in law & economics faced
2007).
diminishing returns, probably because of the shrinking
o Focused mainly on the analysis of benefits of remaining areas of law to be analysed.
and costs from the perspective of economic o Pushed some extent scholars to switch into
actors facing scarcity of resources.
empirical, quantitative analysis of law.
! American institutionalism: concentrated on ! What is crucial from the perspective of law & economics
interrelationships between economic processes and is that the state provides a regulatory (institutional)
legal issues.
environment that motivates contracts that tend to
o Challenge some of the strict assumptions and allocate resources optimally from private initiative.
tendencies widespread in neoclassical Legal obstacles affecting transactions should be
economics, such as autonomous market eradicated from the legal system.
at the University of Chicago. Interdisciplinary research ! Term of effectiveness of law is ambiguous and does
in economics and law was conducted among others by not have any common definition.
act in line with the disposition stated in the ! Legal regulations may be imposed in order to lower the
hypothesis of the legal norm.
effects of market failures. Market regulations should
! New Haven school: Represented by G. Calabresi. His serve as incentives towards approaching the optimal
contributions include the distinction of direct costs of allocation of resources (Alexy, 2008).
accidents, costs of inadequate compensation of ! Legal regulations are formal institutions. In general,
losses and administrative costs.
institutions are characterised within the economic
literature as systems of established social rules that ! What happened may be considered a regulatory
structure social interactions (Hodgson 2006). They failure – banks managed to take high risks in order to
put constraints on decisions and may be permanent achieve higher short-term profits, by evading the capital
or stable (Glaeser, La Porta, Lopez-de-Silanes, & requirements imposed by legislators, who were mainly
Shleifer, 2004).
hoping to mitigate risks present in the financial sector.
! Institutions are certain ’rules of the game’, ‘humanly ! Another aspect of the global crisis that has to be
devised constrains that shape interaction’ (North, 1990, considered is its behavioural character.
p. 3), and encompass both formal and informal systems o Economists failed in anticipating the financial
and enforcement mechanisms.
crisis and even contributed to it by
! From the economic perspective, institutions may encouraging the policymakers to perceive
cause positive or negative effects. The nature of more stability and risk sharing within the
these outcomes depends on the type of behaviour and financial sector.(Colander et al., 2009).
decisions that institutions legitimise and on the ! The crisis was avoidable. It was caused by failures in
allocation of resources that they cause (Leftwich & Sen, government and financial market regulations, corporate
2010).
mismanagement and inattentive risk-taking.
! Social or market attitudes towards regulation may be ! The problem was a scarce amount of interaction or
driven by the effectiveness of institutions. Some collaboration between economists and legal scholars.
institutions, either formal or informal, may be used as Response of law & economics to the latest global
tools for reducing market failures (Botero et al., 2004).
financial crisis was slow.
! Market failures occur (Snowdon & Vane, 1998). By ! Taking into consideration how useful law & economics
market failures we usually consider setbacks in may be in predicting market crashes or dealing with
allocation and motivation, which are the basic roles their consequences, this research branch should be
of markets.
developed before additional incidents occur.
o Market failures evolve because of ! Higher popularity of law & economics will lead to a
incompleteness of markets, information higher number of researchers, better access to data,
a s y m m e t r y, i m p e r f e c t c o m p e t i t i o n , and the development of empirical tools, as well as
externalities, public goods undersupply and reconsideration of regulation or public policy.
Law & Economics in the Italian Constitutional ! The Italian legislator deemed that those revenue should be
Jurisprudence: The Case of the Windfall Profit Tax on Energy considered windfall profits – derived from opportunistic
Companies and speculative market operations, consisting, in particular,
Luca Amorello / Stefano Maria Ronco in the exploitation of upward fluctuations in the prices of
commodities, as a way to increase the prices of
downstream products, but without lowering the resale price
1. Introduction
to consumers as soon as the price of raw materials was
decreasing
! In the judgment issued on 2 February 2015 (Law Decree n. ! The rationale involves the complex problem relating to the
112/2008), the Italian Constitutional Court decided upon significance of the element of risk as a typical condition
the constitutional legitimacy of the windfall profit tax of the entrepreneurial activity
imposed by the Italian government in 2008 on profitable o Element of risk represents a corollary of the
energy companies. This established the so-called Robin notion of economic activity and constitutes a
Tax.
prerequisite for the qualification of the notion of
o provided a surcharge on the ordinary entrepreneur
corporate income tax, applicable only to ! Business Income Elements (in reference to the element of
certain operators – broadly speaking, economic risk)
undertakings in the energy sector – and only (1) risk-free rate of return on the invested capital
under certain conditions – revenues and (2) infra-marginal income from economic rents
taxable income exceeding certain thresholds
(3) income from risky activities, where the income is
! Two-fold perspective:
dependent on uncertain future developments like the
o attracted considerable attention from a strictly success of innovative research, the exploitation of a
Italian constitutional perspective as it derogates new market, the reliability of the existing workforce or
from the traditional view by which the the stability of the political environment
decisions of the Constitutional Court which ! Not possible to identify a unitary notion of business
lead to a declaration of unconstitutionality income, being necessary to differentiate business income
entail a retroactive effect and trigger the right on the basis of the higher or lower kind of risk of the
of taxpayers to claim back the amounts activity which is from time to time carried out.
undertaken by the Italian Constitutional Court ! Held that these profits derive from monopolistic rents
in its review of constitutionality. In particular, linked – for example – to legislative provisions and
the ruling at stake is characterized by an regulations that attribute only to a selected number of
innovative law and economics analysis that undertakings certain rights and permissions by law, or
looks at the individual and aggregate effects related to contingent market conditions that allow some
of such corporate levy as juridical industrial enterprises to exploit their dominance on the
underpinnings against which testing the market by generating excessive profits unrelated to any
constitutional legitimacy of the Law Decree.
business risk
o Levy at a higher rate those undertakings whose ! Court of Justice has recognized the validity of tax
profits were strongly linked from the sales of legislations – even when significantly hit the taxpayer as it
fossil fuels that –given the condition of the was demonstrated in the Iberdrola case – provided that the
international markets – had reached high prices.
levy at hand would be shaped in a way that ensures that
the windfall profit is clearly distinguished from other profits
generated by the undertaking, whose taxation should not ! In the last years a well-found economic approach to
be subjected to any higher surcharge
constitutional provisions paved the way for reconsidering
the relationship between the legal settings of state
The Italian experience in view of the constitutional judgment institutions and the economic underpinnings underlying
! Subsequent to the mentioned decisions, the their rationale.
of business income, whose tax rate should be o Shedding new light upon the use of economic
differentiated even if, from a quantitative perspective, a n a l y s i s “ a s a n o v e r a rc h i n g g u i d e t o
the amount of wealth would be the same
constitutional interpretation”.
o Court assesses whether it would be ! Reasoning undertaken the Italian Constitutional Court not
constitutionally legitimate to tax differently the only fully falls within such a consolidated law and
same amount of income whereas it expresses a economics scholarship, but enlarged the scope of the
different ability to pay on the part of the taxpayer
m a i n s t re a m l a w a n d e c o n o m i c s a n a l y s i s b y
(2) the judgment goes on recognizing that the tax undertaking – for the first time ever – a concise
surcharge was inspired by the goal of discriminating “macroeconomic” approach to taxation law.
o Court highlights the fact that those entities carry unconstitutionality is founded; and (ii) a macro-
out activities within an industry with very high economic dimension that justifies the pronunciation in
profitability, low-competition and inelastic favor of the denial to pay back the sums unduly levied
demand (windfall profits)
up by the Italian government.
(3) Analysis of the Court focuses on the proportionality
principle, assessing whether the Robin tax represents T h e m i c ro - e c o n o m i c d i m e n s i o n : i n e ffi c i e n c y a n d
a proportionate mean chosen by the legislator – no.
discriminatory outcomes of the tax
a. The surcharge was imposed on the overall ! Economic rationale of the windfall profit tax lies into the
taxable income, without levying only the government’s efforts to redistribute the extra domestic
share of allegedly windfall profits related to production income attributable to the exercise of
the energetic activities
oligopolistic pricing power by energy companies.
b. The levy of the surcharge did not reflect the ! Tax charge is thought to affect those markets which are
current ability to pay of the same energy supposedly not competitive on their own and where large
companies
profits earned by companies induce little changes on the
c. Impossibility of adopting tools able to avoid
supply side and are largely unreasonable.
! The Court states that the indiscriminate application of its magnitude of such extra income which ultimately
decision with retroactive effect, allowing every taxpayer to harm consumers, is generally considered morally
claim back what already paid, would likely affect other justified.
constitutional values, as budgetary concerns – explicitly ! The rationale of the government intervention therefore is to
taken into account in the newly-enacted art. 81 of the be found somehow into a principle of “economic equity or
Italian Constitution13 – would arise given that the fairness”.
surcharge at hand constituted an important share of the ! Economic literature has scrutinized in details the
Italian overall internal revenue.
downside externalities associated to such an income
o The temporal effects of its judgment, then, tax.
should take place following the publication of the ! Microeconomic analysis shall assess whether the benefits
judgment itself on the national Official Gazette,
generated by “economic equity” are outweighed by the
therefore denying the repayment of the sums
externality costs.
unconstitutional surcharge would result in a financial 1. This levy is frequently recognized to reduce
outflow from the State, which, as a consequence, would production. Energy producers are supposed to be
violate the balanced budget provision enshrined in art. 81 “price takers” selling at world market prices, they are
of the Constitution
not capable to pass these extra costs to consumers
o had the tax unlawfully levied been refunded, the and, therefore, have to absorb them on their own.
fiscal balance should be achieved only at the Then production quantity goes down for any given
cost of a new budgetary measure which would level of price. The cumulative deadweight losses
affect the economically weaker sectors of society
3 Deconstructing the judgment: a law economics analysis 2. The lower production along with the imbursement of
the new tax charges, negatively influence corporate
earnings. The resulting lower dividend payouts for
shareholders reduce stock prices of energy economics analysis where the optimality of the refund
companies, showing up the opportunity costs of denial is a function of the distribution of wealth among
shareholders that instead could have opted for private actors.
distorted windfall profit tax comes at the cost of eventually ! The judgment of the Italian Constitutional Court constitutes
harming general consumers, thereby contradicting the a path-breaking analytical paradigm for a constitutional
microeconomic significance of the equality principle.
review based on the interplay between the constitutional
! Court logically argues the tax charge has no redistributive foundations of the State and the expected (micro and
benefits or welfare improvement effects that may macro) economic utility of its legislative acts.
reasonably outweigh the deadweight losses determined by ! Principle of budgetary responsibility is not only deemed as
its application.
the macroeconomic backstop aimed to constrain excessive
public expenditures, but it also represents the basic
The macro-economic dimension: the right of tax refund and premise upon which economic interactions in the
the principle of government budgetary balance market are settled.
! By widening the normative content of article 81 of the ! As it was previously noted, this levy – to be constitutionally
Italian Constitution – which lays down the principle of legitimate – should not only be consistent with the
budgetary balance – the court justifies its stance microeconomic notion of “economic equality” between
on rejecting any tax refund in light of the negative market participants, but it should also not endanger the
aggregate costs and macroeconomic imbalances.
macroeconomic objective of budgetary equilibrium pursued
by government in accordance with the Constitution.
Informal relational dimensions: peers, ideological Controversial decisions on high profile cases:
communities, party alignments, and ideational, identity- · 1986: Legitimacy of confirmation of Pres Cory
based, or clientelistic networks
administration after EDSA revolution
· 2001: Deemed resignation of Estrada and
Qualifiers:
legitimacy of GMA’s presidency
1. Draw on insights in social network theory (e.g., · 2012: impeachment of CJ Corona (appointed
homophily and propinquity), we do not claim that despite 60 day consti ban on appointments before
social ties correlate with votes for or against the presidential elections) for abuse of power, betrayal of
presidential administration in power; rather, we see public trust linked to GMA’s corrupt behavior
them as creating personal loyalties that make · 2018: removal of CJ Sereno via quo warranto
2. while we focus on the diffusion of political - traditionally not been as representative as other
(presidential) and hierarchical (CJ) pressures through political elites in terms of regional diversity, university
these networks, we do not deny that other background, or professional sources for
mechanisms may also be at play (e.g., presidential appointment. Four decades later, the bench since
appointees sharing similar legal views and strategic 1987 (Table 1) shows little change.
calculation about a dissenting vote), but we also - Supreme Court have been graduates of only
consider them to be embedded in social ties of six, of which two, Ateneo de Manila University and
loyalties and friendship formed over years.
the University of the Philippines, account for about
64%. Some regions, such as Luzon, are over-
THE RELATIONAL PERSPECTIVE represented relative to population; others, such as
SC – established in 1901 under US colonial tutelage part Mindanao, are under-represented – an illustration of
of Commonwealth of the PH in 1935
the traditional bias of elite socialization in the capital,
- called upon regularly to review the Manila, and surrounding Luzon. Most justices have
constitutionality of cases of considerable policy been appointed from within the judiciary (60%),
consequence
followed by academe (12%) and the executive
- but then succumbed to Pres Marcos which branch (12%). However, the shares fluctuate
prompted Pres Aquino to repopulate the bench
considerably – a hint of each president’s influence on
- in 1987 Consti also granted the court expanded appointments.
Composition of SC
Issues: Presidential staff influence JBC members
· SC: 1 CJ, 14 Associate Justice=15 appointed by shortlist candidates, or networks to lobby the pres
Pres
and staff for specific candidates once the list
· Sit in division of 3, 5 or 7, unless decided En submitted leading to compromised nominations that
banc
lacks transparency. Ignoring candidate’s integrity
· Term: until 70 yrs old or if incapacitated/ and rand order even occasionally expanding JBC’s
impeached
shortlist
Composition of JBC (Judicial and Bar Council) – Sec 8, Effect to votes: Pres appointments to SC or
Art 8 of 1987 Consti
elevation to CJ generate loyalty to Pres patterns of
· created under the supervision of the gratitude, obligation, and deference dominate social
Supreme Court composed of the Chief interaction in the Philippines. Gratitude then lead to
Justice as ex officio Chairman, the vote as pro-president cohort in politically sensitive
Secretary of Justice, and a representative of cases. Seniority, friendship, and shared professional
the Congress as ex officio Members, a and educational allegiances might have affected
representative of the Integrated Bar, a votes.
Issue: What motivates judges to decide cases as 3. Seniority shapes the flow of information among
they do
justices. This in turn reflects a common dynamic: junior
what influences shape their decisions are justices often defer to senior justices – a fact recognized
traditionally at the centre of scholarship on judicial by a rule that in en banc decisions, judges vote in reverse
decision-making
order of seniority.
conform to precedent and legal norms, centering on 2 hypotheses proposed for how the Supreme Court
constitutional and doctrinal variables (e.g., rules bench behaves:
found in legal materials, constitutional and statutory (1) Justices connected by university and professional
texts, and precedents of the same court).
networks are likely to exchange information and
2. Attitudinal models – Downplaying the constraints constitute an informal group that can generate
of law, attitudinal models argue that ideological momentum to vote together; and
positions and policy preferences shape judicial (2) two situations in particular may influence how each
decisions
justice votes:
3. Strategic-rational models – acknowledge that the (a) a justice appointed by the president in power
policy preferences of judges must also take account may seek to influence other justices in the same
of intra-court and government interactions
networks to vote in the president’s favour –
illustrating informal political pressure, as in the
Critique of some scholars: questioned the singular focus attitudinal model; and
on judicial preferences related to legal policy, suggesting (b) justices who share networks with the CJ are
that judges may also pursue personal goals, such as likely to vote the same way in important cases –
their standing with the public and legal audiences; career illustrating informal hierarchical pressure on the
considerations and aspects of workload and leisure time; bench.
METHODS AND DATASET
Judicial networks can also be based on:
47 Philippine Supreme Court decisions between 1986
political interests (partisan or ideological) or patronage and 2015, chosen based on:
and clientelism (often reinforced by cultural, regional, or (1) coverage on the front page of two major newspapers;
religious ties) – though none of these is easy to capture. (2) citations in publications about the Supreme Court;
Networks may also differ in the extent to which they are and
formal (e.g., alumni associations, legal fraternities, and (3) vetting by two local experts.
sororities) or mainly informal (e.g., friendships). Whatever Megapolitical cases are of particular interest because of
the case, networks generally form through repetitive anecdotal evidence that they are most likely to trigger
interaction, and their dynamics are guided by informal The individual votes of each justice in the 47 cases give
norms – loyalty, authority, reciprocity, and personal us 618 observations.
benefit – that often directly compete with professional Slightly more votes were favourable to the administration
norms and the desire for standing with legal and public in decisions made during the administration of the
audiences.
president who had appointed most or all of the judges;
except for the first Aquino presidency, little difference
ISSUE:
between administrations was found.
(2) what the magnitude of this effect is. Thus, we probe a common technique to describe and predict personal
the extent to which a justice’s decisions are independent interactions. The two principal networks of concern here
or possibly influenced by social ties.
are the university and the work-related (see Figure 1).
become friends.
vote but also that the topics carry over into personal The two adjacency matrices constructed are university-
conversations. In fact, instances of CJs attempting to affiliated, W (univ) , and professional work background,
muster clear majorities in high-profile cases suggest that, W (work) . Seniority is introduced on the assumption that
occasional last-minute swings notwithstanding, voting senior colleagues exert more peer pressure than juniors.
intentions are well-known. 18
The diagonal element of matrix W is always zero. Though
the maximum number on the bench is 15, the actual
number varies by case, as does the adjacency matrix. In When a justice knows the CJ personally, the CJ might
our sample, the average is 13.34, the median 14, and the exert pressure to vote in the same direction.
range 7–15.
REGRESSION FINDINGS
Next, we construct several independent variables,
considered to explain individual votes, based on The dependent variable is binary, 1 for favorable to
dominant academic models for the regression analysis. admin, 0 if not
Panel data structure is highly unbalanced, therefore used
1. Presidential appointee: takes value 1 if the justice was random-effects Probit model and estimated the
a p p o i n t e d b y t h e p re s i d e n t i n p o w e r w h o s e parameters by maximum likelihood.
2. Female: takes the value 1 if the justice is female, zero Model-1: baseline regression model
otherwise.
Findings:
3. Age at decision: is the age of the justice when the case - female justices are less likely to vote with the
was decided.
administration in power in high-profile cases
4. Presidential tenure at decision: is the duration of the - Age at decision is not statistically significant.
presidential administration in power when the decision Nor is professional background, though both
was made. Except for the Estrada and Arroyo academic and private practice backgrounds show
administrations, the maximum year is 6; the average for negative signs.
the Estrada administration is 2.28 years, and for the - Decisions against the current administration are
Arroyo administration 9.29 years.
more likely toward the end of the presidential term
5. Professor of Law: takes the value 1 if the justice as presidential tenure at decision is negative and
worked as an academic before appointment, zero significant at 1%. This is consistent with possible
otherwise.
strategic ‘defection’ as a presidential term is ending
the executive branch before appointment, zero Regression models with social network variables
otherwise.
4 new social network variables:
7. Lawyer: takes the value 1 if the justice has experience I. Presidential pressure
2. Work and presidential appointment –
Among the 5 occupational categories majority group are statistically significant ( at 5%)
the president in power through a social network is more 3. University and CJ vote
presidential appointee.
Taken together, the findings suggest that informal
Hypothesis 2: (hierarchical pressure from the CJ): here political linkages (presidential pressure) and
we draw attention to the pressure exerted from the CJ. hierarchical pressures (from the CJ) are important in
Justices who share networks with the CJ are likely to animating the voting behaviour of individual justices.
vote the same way in important cases.
This both lends further support to widespread
anecdotal evidence about informal influences on the
Supreme Court of the Philippines and raises
questions about how independent its bench is.
CONCLUSION
political–presidential and hierarchical pressures via the
CJ exerted through networks did influence the voting