Law and Economics of the Digital Transformation

Digital nudges—that is, significantly behavioral interventions that use software and its user-interface design elements—are an increasingly pervasive feature of online environments that shapes behavior both online (e.g., changing online privacy settings) and offline (e.g., taking a flu vaccine due to a text message reminder). Although digital nudges share many characteristics of their offline counterparts, they merit particular attention and analysis for two important reasons: First, the growing ubiquity of digital nudges makes encountering them nearly unavoidable in daily life, thereby bringing into sharper relief the promise and perils of nudges more generally. Second, the potentially greater potency of digital—compared to offline—nudges, the greater opacity of their instruments and behavioral mechanisms, and the typically dominant role of private intermediaries or independent private actors in their implementation all raise unique or qualitatively different challenges from those presented by their better-studied offline predecessors.

A smart contract is an agreement enforced by blockchain technology. It supposedly allows the parties involved to conduct transactions more efficiently than a traditional contract, which is based on legal (costly) enforcement. This chapter challenges this claim. Given the need for an efficiency-enhancing adaptation of institutional arrangements—a chief problem of Oliver Williamson’s transaction cost economics—smart contracts may incur higher transaction costs than traditional contracts.

This chapter analyzes the application of digital tools used to personalize consumer insurance contracts. First, a proper meaning of “personalization” is proposed, and its function in the insurance context is discussed. Subsequently, the paper illustrates the most important scenarios of incorrect personalization from the perspective of consumer insurance buyers. This enables an analysis of what legal remedies under contract and consumer law may be applied to protect the interests of consumer insurance buyers. The chapter’s conclusion identifies a preferred and feasible solution from the perspective of insurance consumers themselves.

In a series of legal fields, from constitutional law to contracts to competition law, the market mechanism has provided a claimed neutral baseline against which to measure rights and remedies. While that neutrality was always somewhat fictional, its rhetorical strength bolstered classical liberals, Chicago School adherents, and others who favored the translation of market ordering into the positive legal framework. But increasingly, “the market” as an open, almost nature-given provider of neutral, homogenous prices may not be true. Increasingly, digital platforms match and target consumers with individualized offers and pricing. Law has relied on the concept of open, uniform markets—if this perception wanes, what will this mean for legal doctrines based on market neutrality as a keystone?

This study aims to examine the impact of the transition of Polish commercial courts to remote working via online proceedings. To achieve this goal, we will exploit the natural experiment in 2020—the COVID-19 pandemic—which forced many areas of human activity (including the justice system) to move to the internet. Using data envelopment analysis and stochastic frontier analysis, we will show that the switch had no significant impact on the efficiency of Polish commercial courts. However, these results are to be treated with some caution. The efficiency benefits of the new technology may have been reduced by the steep learning curve and the fact that the decision to change was made suddenly and under the pressure of the disease. The topic requires, therefore, further scientific attention.

The COVID-19 pandemic, as an unprecedented global health and economic crisis, has shaken digital resilience in general, and on the government side in particular. Pandemic circumstances have caused a slowdown in economic activity and, at the same time, introduced us to the momentum of accelerated digitalization. Among other things, economic policy makers had two key economic policies, monetary and fiscal, at their disposal, in order to ensure the necessary stabilization of the economy and amortization of the negative consequences of the crisis on business activities. Speaking of fiscal policy, the special burden of the crisis was in the field of ensuring the integrity of the tax system and yielding tax revenue. In this context, tax administrations have faced, on the one hand, the potentially accelerated digitization of work and, on the other hand, the pressure of having to ensure the highest possible degree of tax compliance in a situation that, due to its characteristics, presented an additional risk for tax fraud. The situation has become more complicated in developing countries, such as Bosnia and Herzegovina, which has a deep-rooted bureaucratic system and fights hard for public trust while trying to solve the problem of collecting enough tax revenue for the basic functions of the state. This chapter examines how the COVID-19 pandemic affected the process of digitalization of tax administrations with the specific aim of determining whether Bosnia and Herzegovina, as a developing country with a commitment to membership in the European Union, has seized momentum and accelerated the degree of digitalization of tax administrations, especially the Indirect Taxation Authority. In order to meet the set research goal, the first part of the chapter will present a theoretical framework of the economic analysis of the digitalization of the tax administration. The second part of the chapter will provide a comparative analysis of the situation and perspectives of digitalization of the tax administrations from 32 member administrations based on the research of the Organization for Economic Cooperation and Development published in 2021 with special reference to the impact of the pandemic. In the third and last part of the chapter, based on the empirical research and desk analysis, the author seeks to answer the fundamental research question of whether the COVID-19 pandemic accelerated the process of digitalization of tax administration in Bosnia and Herzegovina in which the stage of digitalization is generally low and which can be seen as a sludge in the digitalization process.

The digitalization not only impacts the financial markets or the supply chains but also the intellectual property rights framework. Copyright-protected works are suitable to be digitized in the form of a token and then be licensed or transferred on the distributed ledger technology. Such an architecture does have efficiency benefits, but some weaknesses (limited scope of involved persons, enforcement) can also not be overlooked.

Directive 2019/790 prepares the EU’s copyright system for a Digital Single Market. Its implementation of a de facto strict liability for platforms has led to an increased need for automatic content recognition, which in turn has caused an increased need for sufficient safeguards of unauthorized but legal use that falls under an exception or limitation. This chapter is focusing on how to provide this breathing space for copyrighted works, especially in view of the emergence of the metaverse.

This chapter concentrates on unsupervised learning, the recent rise of deepfakes, the potential role of copyright and related rights, exceptions and limitations therein, and personality rights to ensure a balanced application of the technology. Using inter-disciplinary insights from law and the technical literature, this chapter takes a holistic view on the uptake, adoption, and the future of deepfakes. Considering the centrality of personality rights to deepfakes, this chapter also explores the potential foundations of an EU-wide personality rights framework. It crucially examines the future acceptance of deepfakes, and considers the potential role of the blockchain technology to prevent the apocalypse of a potential infodemic following the widespread prevalence of deepfakes.

The analysis of the adverse effects of a merger on competition has recently changed. While for years, competition authorities have focused primarily on the effects of a merger on prices, the impact on output, or the creation or strengthening of a dominant position in a given market, they are now examining the effects of a merger on innovation. According to the author’s analysis, which begins by explaining the peculiarities of high-tech industries, the notion of “innovation”, and the rationale for merger control, this system can only establish its effectiveness by applying the same standards of proof of the pro- and anti-competitive effects of a merger.

Although market power in platform-mediated markets seems to be ubiquitous, in some cases it may be short-lived due to innovation. Innovation can make an undertaking redundant or an entrant fuelled by innovation can take away market power of established undertakings. European competition law struggles to distinguish between these two situations. The theory of the industry life cycle and the concept of dominant design might help to understand when market power is a persisting problem and when innovation may make market power short-lived. All industries follow a similar pattern, where the emergence of a dominant design is the key turning point, signifying when innovation is no longer a competitive constraint. In abuse of dominance and merger control cases this theory might help in different ways to inform our assessments of several competitive constraints on online platforms.

In the advent of a risk society in which even a more conservative area such as the Law begins to understand, transfer and use technology, in addition to regulating it, with blockchain potential in terms of contracts or artificial intelligence with chatbots for legal advice. Also, voices are being raised in favour of machine-consumable legislation and intelligent nudging, in order to increase legislative effectiveness, efficiency and transparency, thus enhancing compliance at a lower cost thanks to greater simplicity, lower error rate, clarity, accessibility and accountability. The traditional models of drafting and applying legislation were constructed to be used in a non-digital environment, especially because of the underlying hermeneutics process, although it may be interpreted and transformed in a more automatic and operational way in certain topics such as taxing or social security. Nevertheless, the cost required to understand and comply is often disproportionate comparing with the benefit of compliance. Therefore, there seems to be a language gap between production and consumption of legal rules. A (new) solution for this problem may lie in machine-consumable legislation, i.e. transforming legal text, concepts and rules (e.g. procedures, requirements and exemptions) into code that can be read, understood and interacted with by specific software. Also (legal) nudging can benefit from a more technological approach, by helping simplifying and making behaviour more automatic in the “right” direction. The digital world is already well aware of the power of nudging. It is time for the law and policy makers to grasp or at least look at similar instruments. The challenge to overcome the legal language and implementation disparity with technology in a digital era, which is still at an embryonic stage, despite its potential, presents several obstacles, from legal conservatism and a tendency towards inertia, to issues of legal certainty and the loss of humanism. Thus, this chapter intends, beyond a survey of the state of the art of rulemaking and nudging as code, to understand how it could work, its advantages and pitfalls, preferential areas of application, caution and limits in its implementation.

This chapter explores the far-reaching effects of the digital transformation on trade and trade law. It first sketches the state of affairs under the multilateral forum of the World Trade Organization (WTO) and, second, analyzes the more deliberate regulatory responses to the challenges of digitization formulated in free trade agreements (FTAs). The focus here is placed on distinct advanced models of digital trade regulation, such as the Comprehensive and Progressive Agreement for Transpacific Partnership (CPTPP), as well as on particular forms of legal innovation, such as the new generation of Digital Economy Agreements. By looking at specific agreements, the chapter also demarcates the positioning of key stakeholders, in particular the US, the EU, and China, and contributes to the understanding of the dynamic and contentious landscape of global trade law, as reshaped by digital transformation in recent years. This chapter finally asks whether the emergent regulatory environment is adequate to match the data-driven economy and whether certain pitfalls of international cooperation and path dependencies hinder this.

The digital transformation is affecting every aspect of our lives, from an individual to the global level. Digital technologies can be developed and used both for violent and peaceful purposes. The impact and consequences of technology for peace and human wellbeing are often difficult to predict, as even supposedly peaceful purposes are often overshadowed by ambiguity and ambivalence in their application. Both in research and policy making, the space technology inhabits and its role in social change are still being debated. In this paper, I will discuss possible governance strategies to promote the opportunities and address the risks of digital technologies. One governance option is—as the title of this paper indicates—the drafting of a new international agreement in the form of an UN-Convention for the purpose of safeguarding peace and human wellbeing in the present and for the future. Alternative governance options such as self-regulation, economic incentives, and nudging are explored regarding their advantages and shortcomings. Furthermore, the possibility of applying already existing normative frameworks, namely international human rights and humanitarian law to the digital sphere is discussed from a critical perspective. The paper concludes by assessing the potential of the presented governance strategies for safeguarding peace and human wellbeing in the digital age.

The paper reviews the regulatory approaches taken by Polish and British regulators. Whereas Poland adopted strong consumer protection regulatory measures due to the process of implementation of the PSD2 Directive (Directive (EU) 2015/2366) into the domestic legal system, raising the level of protection on a national level, the British regulatory system attained the same result by a complex set of actions taken by English courts, the British Financial Ombudsman System and the British Payment supervisory body. In both cases, however, the final level of consumer protection defers from the one explicitly set out by the Court of Justice of the European Union, which adopted a less favourable approach in its judgment in Case C-245/18 Tecnoservice Int. Srl, in liquidation v Poste Italiane SpA. Meanwhile, the further level of protection of consumers, namely the triple authorisation rule, has not been adopted on the level of the EU law so far. This situation led to institutional alternatives in the form of either statutory actions, judicial activism, or administrative interventions. The paper thus reviews the potential response to regulatory and market failure from the perspective of institutional law and economics.

The digital transformation and the sustainability transition are the most important current challenges for European agricultural regulation. Innovation emerges as a key issue in both processes. This paper proposes an expansion of the methodological toolbox of Law and Economics to analyze how regulation can catalyze the development and diffusion of sustainable innovation.