Institutional competition of optional codes in European contract law

The Common European Sales Law (CESL) is the European Commission’s most recent policy initiative for European contract law. It aims to address the problem that differences between the national contract laws of the Member States may constitute an obstacle for the European Internal Market. This paper develops a model of the institutional competition in European contract law and uses it to addresses the question as to whether an optional European contract code and the CESL are economically desirable for European contract law. To do so I examine the transaction costs involved in the process of choosing an applicable law that European businesses face when they conduct cross-border transactions in the European Internal Market. I then describe how these transaction costs shape the competitive environment, i.e. what I refer to as the “European market for contract laws” in which the contracting parties choose a law to govern their cross-border contracts. Having identified this environment and the competitive forces operating within it, I propose a model, the “Cycle of European Contract Law”. I use this model to analyze the competitive processes that take place in the European market for contract laws. Based on my results I make recommendations for the optimal implementation of an optional European contract code and the CESL in European contract law.