Regulatory competition in contract law has become a popular topic in recent years. The focus of the debate, however, has been whether regulators actually compete for application of their contract laws. In contrast, the question under which conditions this competition – if it exists – might have positive effects has largely been ignored. In the paper I set out to fill this gap. I argue that empirical evidence shows that there is – or that there can be – regulatory competition in contract law and that freedom of choice on the level of private international law may ensure its efficiency. However, to induce efficient regulatory competition freedom of choice must be properly designed. This is because choice of law-clauses may fail to represent the interests of all parties affected by the choice and cause regulators to ignore these interests when adjusting their contract laws. Unfortunately, of the many restrictions of freedom of choice that are to be found in current national or international private international law regimes only those that serve the protection of weaker or third parties actually regulate freedom of choice in a way that ensures efficient regulatory competition. Other restrictions, in contrast, limit regulatory competition more than necessary and, thus, compromise the potential positive effects of a market for laws. This holds particularly true for the restrictions relating to the choice of a non-state or unconnected law: they do not help to avoid a race to the bottom, but merely reduce the number of competitors on the market for laws. National and international private international law regimes should, therefore, abandon these restrictions and thereby ensure that the design of freedom of choice actually fosters efficient regulatory competition.
Ruhl, Giesela, The Choice of Law Framework for Efficient Regulatory Competition in Contract Law (July 30, 2012). REGULATORY COMPETITION IN CONTRACT LAW AND DISPUTE RESOLUTION, Horst Eidenmüller, ed., Munich, 2012.