TILEC Research Program 2018-2023:The Governance of Economic Activity in the Digital Age
In 2018, the Tilburg Law and Economics Center (TILEC) celebrates its 15th anniversary. TILEC was created in 2003 as a joint research center of the Tilburg School of Economics and Management (TiSEM) and Tilburg Law School (TLS) (the two parent schools). What started as an informal gathering of curious legal scholars and economists interested in the role of competition and the functioning of markets has evolved into an internationally renowned research center in the field of economic governance
A short history of TILEC and its past accomplishments
TILEC was created in 2003 and its first positive evaluation occurred already in 2005.1 The parent schools then concluded a Second Agreement regarding TILEC covering the period 2007-2011. As part of that agreement, TILEC prepared a first research program, entitled ‘Market Governance’. The performance of TILEC on that program was positively evaluated in 2011.2 Based on this,
TILEC prepared its second research program, entitled ‘The Governance of Economic Activity’ covering the period 2012-2017. Meanwhile, in recognition of TILEC’s contribution to the academic reputation of Tilburg University (TiU), TILEC was granted the status of Center of Excellence in 2013.
Our second (outgoing) research program for the period 2012-2017 was entitled “The governance of economic activity”. The achievements and deliverables of TILEC’s second research program were positively evaluated in 2017.3 In this evaluation, the quality and quantity of TILEC research were regarded as ‘very high, placing TILEC among the global leaders in their field of law and economics’. In addition, TILEC was viewed as having acquired a unique position at the interface of economics and law, and as having developed into an outward-oriented and respected center of research excellence that is currently a global leader in its field.
Against this backdrop, we realize that TILEC is entering a consolidation phase. External recognition, as exemplified by prestigious personal grants or long-term collaborations with big private companies and public institutions, calls for reflecting anew about our strengths and achieving critical mass at the interstices of competition, innovation and regulation.
TILEC’s vision is to continue being a global leader in the research on economic governance at the frontier between law and economics, known for its interdisciplinary method, path-breaking research output, societal relevance, and impact. Our vision is set in motion through maintaining an active, outward-oriented research environment producing high-quality publications; use of innovative research methods; constant attraction of young talent; active involvement in education and training activities; a continuous flow of high-level external speakers from the academic and policy world; organization of world-class conferences and workshops; regular acquisition of funds from external (i.e. outside Tilburg University) sources; and effective communication of research results to the relevant academic and societal circles.
This vision is articulated around three dimensions: topic, research themes, and method. While we intend method to be generously defined (incorporating the methods of our two parent disciplines, but adding the interdisciplinary perspective) and themes to be evolving over time, the topic of research, as described in the following section, is what connects all TILEC members. The distinguishing feature of law and economics as practiced at TILEC is that it brings together legal scholars and economists who are willing to learn from and interact with each other. TILEC members hold the shared belief that interaction between the two disciplines can create a fertile ground for interdisciplinary research but also improve greatly monodisciplinary research.
The New Research Topic – The governance of economic activity in the digital age
Exogenous factors oblige TILEC researchers to think anew. Technological advances (e.g., artificial intelligence, automation, digitization, or the increased significance of the collaborative economy) create fertile ground for new approaches and ideas in terms of governance and regulation. We consider new technologies and digitalization as important game-changers that must be taken into account when public intervention with market forces is being contemplated. Thus, for the period 2018-2023, TILEC will devote special attention to the influence of digitalization in the governance of economic activity.
We consider digitalization as the way different facets of social life are restructured around digital communication and media infrastructures. This concept is broader than that of digitization, which refers to the conversion of analog to digital information. Given the type of work we have delivered based on the outgoing research program, we are well-versed to deliver groundbreaking research outcomes. In order to achieve our objectives, we focus our research efforts on (i) the design and characteristics of well-functioning institutions and their governance, (ii) competition, and (iii) innovation. In doing so, we are confident that we take into account the key forces and concepts that allow for societally relevant research of the finest quality, also with a view to offer pointers for adequate intervention in the marketplace.
As previously, the incoming research program makes explicit the absence of any ideological bias in favor of (unregulated) markets at the expense of other policy solutions; rather, the emphasis is on governance as much as on well-functioning markets. We view markets as instruments, which can be shaped, and which may need to be shaped and regulated, in order to deliver the desired social objectives. We maintain the same understanding of governance as an organizing or encompassing concept that includes various fields such as institutional analysis, political economy, organizational behavior, industrial organization, law and economics, economic law and regulatory systems. We understand TILEC’s research topic as the design, implementation and operation of the structures, legal or otherwise, needed to sustain economic activity in the digital age, notably through contract law, corporate law, trade law, intellectual property law, competition policy, or economic regulation.
Thus, the overarching research question that constitutes the liaison among the various research interests of TILEC members boils down to the following:
Taking into account the growing digitalization of society, exemplified by the increasingly important role that big data and artificial intelligence play for the functioning of markets and other forms of social interaction, how should institutions and structures be designed and what types of incentives can be adopted so as to ensure that public policy objectives are attained?
Innovations in information and communication technology (ICT) are having an enormous impact on the creation and diffusion of information; connectivity; societal interaction; institutional structures; production methods, manufacturing and services supply; or competition among undertakings. The multiplicity of social interaction instances beyond traditional boundaries and territorial restrictions and the ensuing production of big amounts of data create economic opportunities but can also potentially impinge on fundamental rights or societal values and preferences. Sustainability considerations; problems of exclusion and entry barriers that smaller firms are unable to surmount; access-related issues to basic services for the most vulnerable societal groups; privacy considerations; the protection of basic economic liberties and the maintenance of incentives for investment in innovation and creativity are some of the grand challenges that States and regulatory authorities are confronted with at the European and global level. Traditionally, the State would deploy authorities that mediate between the polity and the economy, such as agencies, supervisory authorities and regulators, or instruments, which traditionally include market design, regulation and spending, with their respective manifold variants, including public procurement and State trading. However, technical changes such as distributed ledger technologies, blockchain or other peer-to-peer variants reinforce disintermediation. Such phenomena call into question not only public regulation but also the existing market design in several sectors such as banking or insurance. Their aterritorial character also calls for an exploration of the continuous need for and the nature of regulation.
We understand ‘governance of economic activity’ to refer to the way the actions of private actors (individuals, firms, associations, civil society organizations) as well as public actors (legislators, regulators, courts) at varying regulatory levels interact. Such interplay must be taken into account whenever designing and implementing economic policies or assessing economic outcomes. Digitalization, powered by highly complex technologies, algorithms, gathering of data and powerful machines and computers, only complicates the equation and calls for more sophisticated analysis and the identification of new interdisciplinary and empirical methods and techniques.
Against this background, TILEC prioritizes its research interests by focusing on the full use of the expertise of its researchers related to the themes of institutions, competition, innovation, and, when appropriate, sector-specific regulation. It is our common belief that understanding the nature of the interactions among economic agents, institutions and policy instruments used to resolve complex economic problems and market distortions accentuated by digitalization, automation or the use of artificial intelligence will yield significant results in terms of improving the functioning of economic activity. This can be done through the identification of appropriate governance structures in markets increasingly driven by big amounts of data. The research themes chosen are closely connected with one another and are expected to generate results that are relevant for more than one theme. We are confident that addressing the challenges that arise within these themes will be key to building a healthy, sustainable, and resilient society.
For the period 2018-2023, we intend to focus our research efforts on the following themes which are at the core of the governance of economic activity and fully exploit the expertise acquired within TILEC since its creation. For each theme, two TILEC members, one from law, the other from economics, will take the lead in animating the group:
TILEC will continue studying formal and informal institutions that underlie and govern the production and exchange of goods or services and contribute to other public policy objectives with a view to strengthening resilience and adaptability. Formal institutions, in this sense, comprise the legal regime including substantive contract, criminal and competition law, private standard-setters as well as administrative and judicial institutions entrusted with the task of enforcing these substantive rules. Informal institutions include social norms and private networks. TILEC researchers specifically focus on the functioning of existing institutions as well as innovative institutional design powered by technological advances, that would reflect and tackle the complexities arising from changing economic forces. Such institutional design requires that the incentives and behavior of individuals who are subject to the policy in question be carefully analyzed, including, whenever desirable and possible, in the laboratory or in the field. Research results within this area are expected to constitute inputs and inform TILEC research under all three research themes.
With regard to institutional design, TILEC researchers analyze the design of formal or informal institutions and propose changes that improve the effectiveness and efficiency of policy outcomes under changing economic forces. A prime research objective is the identification of policy instruments that allow for deterring socially undesirable, and for fostering socially desirable, behavior. TILEC researchers address questions such as: what are the underlying conditions for rule adherence in a certain society or community? Which type of institution is best suited to support
certain transactions? What are the underlying mechanisms that determine whether rules and norms will be obeyed? Such questions have been traditionally at the heart of law and economics analysis.
Secondly, TILEC researchers study the impact of institutions on the incentives and behavior of individuals who are the subject of the policy produced by the institution in question. We are also interested in the effects of institutionalized objectives of organizations on economic and policy outcomes, for example, whether the policy objectives of the European Commission and National Competition Authorities are aligned and whether misalignment yields significant compliance costs. We also investigate how far the objectives pursued in applying antitrust remain sustainable in light of digitalization and ongoing social concerns about market concentration and inequalities. Furthermore, the provision of public services is increasingly opened to market forces. In this context we inquire how for-profit, not-for-profit, and public organizations act differently in regulated industries such as the healthcare sector.
Thirdly, TILEC researchers will study market design, which consists in the design of rules and institutions that ensure the proper functioning of markets. Market design issues are likely to play an important role in new digital markets (for instance online auctions), but also in creating new markets for flexibility in energy systems. Importantly, new digital markets can complement existing traditional “markets” and enhance the functioning of these. Here one can think, for example, of transport markets, where rights of use can be traded on digital markets, so as to use the network more efficiently. A question then is how the digital market should be designed in order to meet both efficiency and fairness objectives. Sometimes market functioning can be enhanced through product design. For example, to ensure internalization of externalities, new market products (such as emission rights) can be created; to improve liquidity, products might be bundled or standardized. Sometimes improving the functioning of markets will require rewriting the market rules and the market micro-structure, i.e., the rules that specify which actions are allowed for market players, how much information is provided to them, and in which order players interact with each other. TILEC researchers will study different set-ups: single buyer systems like tenders, centralized market structures, in which a single market maker clears markets, and decentralized markets where several market makers compete.
Fourthly, TILEC researchers will dedicate more efforts and resources to the study of the fundamentals of private collective action. We are interested in understanding the strategies of resilience and transformation used by private rule-making bodies to remain relevant and powerful despite exogenous episodes and shocks which may call for or justify shifts of prevailing regulatory paradigms. This will include a thorough look at rule-making and standard-setting activities in certain sectors of the economy such as manufacturing and finance but also other sectors. In this respect, TILEC researchers will analyze the types of interaction to be observed between public authorities and non-state bodies and how the former impact on the functioning of the latter. When appropriate, an analysis of external forces such as the European Commission, hybrid regulatory institutions such as standard-setting organizations or the World Trade Organization (WTO) that may shape such interactions will also be part of TILEC research.
TILEC researchers will further work specifically on the governance of data-driven markets, contributing to TiU’s impact theme of ‘Creating Value from Data’. Here the overarching approach is a thorough analysis of the economic characteristics of data-driven markets – for instance, the clear distinction of direct and indirect network externalities that are unavoidably connected to big data. Additionally, we study how certain desired or undesired effects of digital technologies can be steered, supported, or mitigated with regulation, competition law, and alternative economic governance institutions, including private ordering. In this respect, we examine the fundamentals but also normative questions on data-related issues such as algorithms, data-sharing and data portability. We use the lens of institutional economics, but also law, political economy and sociology. For instance, there is currently a debate as to the adequate way to regulate algorithms, with some opting for data-protection-related methods, and others arguing that auditing should be a sufficient, cost-effective and less burdensome way to regulate algorithms. By the same token, data sharing has recently become a conundrum for regulators but also regulatees (depending on the approach), who realize the pros and cons of enforcing data portability rights or of enforcing data sharing among competitors.
TILEC researchers investigate the design and application of competition policy, paying special attention to the way in which economics can be integrated into the competition policy framework, while retaining the prime features of a sound legal system. At a fundamental level, the translation of analytical insights from the economic literature into the normative content of competition law remains an open issue, which TILEC is ideally equipped to address. While studying this problem in its generality, TILEC researchers will include in their work the comparative analysis of competition policy regimes and solutions or the experimental investigation of substantive or procedural law.
At a more abstract level, TILEC researchers aim at studying the benefits of competition as a governance mechanism. There are two schools of thought about competition when it comes to competition law enforcement and the design of policies to stimulate competition. A first school believes that it is all about economic efficiency. A second, more interventionist school believes that the efficiency line of reasoning leads to under-enforcement of competition law and to a suboptimal design of markets. The idea then is that competition policy should not merely be about efficiency. A more nuanced approach would seem to be apposite: in the context of enforcement this pushes in the direction of stricter or more lenient enforcement so as to facilitate the pursuit of other goals (e.g. addressing inequality or protecting the environment); when it comes to competition policy to open up markets, it accepts that competition may not always produce socially desirable results and thus also investigates how markets may be best designed to deliver efficiency but also goals like equity and fairness.
As regards substantive competition law, TILEC research deals with basic issues such as the integration of dynamic efficiency concerns (including long-term investments and innovation) into competition law standards. Competition law does not seem yet to be based on a clear view of the
trade-offs that need to be made regarding innovation; moreover, it is not always possible to design and implement competition law so as to foster any and all innovation. An ensuing important question, which to date is still not completely settled, is whether more intense competition stimulates firms to innovate more or less. In this respect, TILEC researchers will seek to refine the models used in the analysis of dynamic markets, including the ‘competition for the market’ model, which is perceived to imply successive monopolies. Similarly, the research work on innovation and competition policy allows revisiting the ever-present tension between the various objectives of competition policy – including market integration, consumer welfare, the protection of competition as a process, but also introducing contemporary policy concerns such as sustainability.
In a digital age, TILEC researchers resolutely turn to explore in a systematic way the impact of big data (and the associated algorithms) on market competition and regulation. When conducting competitive markets analysis, competition authorities struggle with applying long-established concepts such as collusion or abuse of dominance to new technologies and online platforms. More fundamental work on the traits of new data-driven markets is needed to improve our knowledge and allow for informed judgments by regulators and citizens alike. Furthermore, TILEC researchers are becoming increasingly interested in the evolving role of firms in this equation, as they may be moving towards a situation of perfect price discrimination due to the fact that they get vast amounts of information on their customers. Research questions of a regulatory nature also arise in this regard.
TILEC’s work on the regulation of important sectors of the economy will continue apace. This, for instance, applies to network industries, where we will continue investigating the various aspects of the debate about the legal and regulatory treatment of large-scale investments in innovative infrastructures. Indeed, whether in energy or communications networks, enormous investments into next-generation equipment lie ahead. Regulatory schemes which focus on cost incentives sometimes fail to generate the correct incentives, but reliance on interventions by competition authorities is often criticized for creating an environment that is not conducive to investment. TILEC researchers will continue investigating the validity of such claims.
TILEC researchers continue to be interested in healthcare markets in the new time period that this research program covers. The regulation of pharmaceutical prices or the design of co-payments is among those subject-areas that TILEC prioritizes, with a clear emphasis on the impact of introducing competition in such markets. Depending on the subsector (e.g., health insurance or health-related procurement rules), competition may be welfare-enhancing or, to the contrary, detrimental to consumer welfare. Thus, more focused research is needed on the repercussions of introducing competition among insurers, providers and other stakeholders involved. Our interest on how solidarity plays out in such a setting remains, as healthcare will remain a key social and political issue in the developed world. In this regard, we will continue following developments at the global level relating to the international regulation of healthcare services and trade in the relevant sectors.
Within this researchcluster, TILEC researchers investigate the phenomenon of innovation, broadly construed as the creation and diffusion of new knowledge. Innovation has long been recognized as the main driver of economic growth and holds the potential to provide solutions to a wide array of societal problems, ranging from combating diseases through medical innovation to fighting climate change through green technology. Putting in place a regulatory framework that is conducive to innovation has been a central policy concern within the EU for several years. Although TILEC studies innovation in general, it focuses particularly on innovation in the areas of ICT, as well as in the creative industries and data-intensive industries.
The interaction of competition and innovation remains at the heart of TILEC's research interests. In addition to the work discussed in Section 3.2, TILEC researchers are interested in how intellectual property law interacts with competition law in shaping firms’ incentives to invest in R&D and compete vigorously on price and other product characteristics. Of particular interest is the role of big data in the innovation process: will it serve as an input to innovation, allowing firms to design better products for consumers, or will it serve as a tool to exclude competitors and monopolize markets? Addressing this problem is crucial for creating value from data.
Furthermore, TILEC researchers are interested in the actual process of diffusion of innovation and creativity that brings value to society: it is not enough that new knowledge sits on a shelf; it must also be used in order to realize its potential for enhancing health and wellbeing in society. In this regard, attention is given to both general institutions enabling it, such as standardization or social trust, as well as more innovation-specific institutions. The latter include the study of individual and collective licensing regimes (including patent pools), enforcement mechanisms, IP-negative zones and public domain. TILEC researchers also study more diffusion-centered alternatives to IP regimes, such as subsidies, prizes, and other mechanisms that can incentivize inventors without exposing society to the negative consequences brought about by the creation of exclusive rights.
TILEC researchers conduct research into the private ordering of innovation and intellectual property rights. Given the role of intellectual property rights as incentives to create and to diffuse innovation, we investigate how industries self-organize their affairs when dealing with these entitlements. Examples of private ordering within IP rights are open source, open data or fair, reasonable and non-discriminatory (FRAND) commitment of patents. Recognizing the important role played by Standard Development Organizations (SDOs) in the innovation process, TILEC researchers also examine how the rules regarding disclosure and licensing of intellectual property rights included in technology standards affect participation, investment, and pricing. Furthermore, we look at private ordering mechanisms and social norms that posit themselves as alternatives to legally instituted exclusive rights, and study how individual creativity is driven by non-monetary incentives. If we want to promote innovation, we cannot rely on government intervention alone; private ordering is an important building block for empowering the resilient society.
With regard to the patent system, TILEC researchers investigate two main issues. First, for the patent system to perform its function of fostering innovation, an adequate process of patent
screening must be in place. TILEC researchers study how the existing set of policy instruments interact and how they can be used to improve patent screening. Moreover, they examine mechanisms, possibly involving new policy instruments, to better harness the private information held by inventors and their competitors with a view towards enhancing the functioning of the patent system. Second, the evolving need to adjust the patent system to industry-specific realities is being studied by focusing on the role and design of remedies, both within and outside of patent law. TILEC researchers study to what extent innovation considerations can and should play a role in shaping the remedial framework itself, without first seeking a solution from the external systems, such as competition law. Making sure that only deserving innovations receive patent protection, and that the gains from innovation are shared in an equitable way, are fundamental for equipping the resilient society with the tools to face the challenges of tomorrow.
We are confident that the three research themes chosen are sufficiently broad and comprehensive to cater for interesting and relevant future academic or policy developments in the short run, although some fine-tuning of our research direction may be needed in the medium run to also accommodate the diverse research interests of TILEC researchers and to incorporate developments in research and policy worldwide. Such fine-tuning may also be necessary as we continue intensifying our collaboration with equally extrovert research institutes at TiU such as the Tilburg Institute for Law, Technology and Society (TILT). TILEC welcomes cooperation on specific projects with TILT and other institutes within and outside TiU, as has happened in the past, and will continue to explore possible synergies in the near future.
Method – Interdisciplinarity
Interdisciplinarity is a key distinctive feature of TILEC, widely recognized and valued inside and outside TiU. It provides value-added through its effects on the research questions which are asked; the greater depth and breadth of analysis; the improved presentation of research findings; and the greater involvement in policy-relevant research.
From the outset, TILEC took a different approach from most other institutes that work at the intersection of law and economics. In terms of substance, law and economics is frequently one- sidedly identified with economic analysis of law. While some of the work at TILEC falls into this category, a greater part of our economic research can better be described as using law to enrich economic analysis. Conversely, the legal work done at TILEC is informed by, or even builds upon, economic analysis. This approach emphasizes the two-sided relationship between the two disciplines.
TILEC was conceived as an interdisciplinary, inter-faculty institute. In the USA, ‘law and economics’ is typically associated with the work of economics-trained faculty (usually holders of a PhD in economics) within law schools. In Europe, law faculty members usually hold a PhD in law, but only few are also trained in economics (and hardly any at PhD level): ‘law and economics’ is therefore carried out mostly by legal academics with limited economics training, working within law faculties. TILEC combines the best of both formulae and pushes scholarship to new frontiers. It brings together academics trained at PhD level in their respective disciplines, coming from their respective mono-disciplinary schools but genuinely interested to learn through intensive interaction with the other discipline. At the same time, it also aspires to promote more interdisciplinary scholarship, particularly of an empirical nature.
Members come to TILEC with the methods from their respective disciplines. Throughout our activities, we enable TILEC members to enrich their respective disciplinary research with a rich and scientifically sound understanding of the other discipline. By the latter, we mean that the other discipline is understood dynamically as a lively scientific endeavor, and not statically as a mere source of immutable answers. TILEC members turn to TILEC to improve their contributions to their own discipline. They test their knowledge and output by exposing themselves to the critical eye of researchers from the other discipline, which most of the times leads to questioning various aspects of one’s research and significant improvements in the final draft of a given piece of research. When the opportunity arises, we also foster joint research efforts across disciplines. To make this work, TILEC brings together lawyers and economists who are willing to work on specific problems within the context of the TILEC research program. TILEC promotes close research collaboration, in particular through empirical projects, by facilitating the training or assistance necessary to carry out the cross-disciplinary work. The TILEC management takes advantage of policy or scientific developments, as well as the opportunities offered by contract research or long-term sponsorship agreements, to guide members towards the production of output that will ultimately contribute to both disciplines.
TILEC has established an inspiring and internationally-oriented research environment. Narrow boundaries among disciplines have been transcended by means of regular communication of informal nature, especially among young scholars at the PhD and assistant professor level. Both legal scholars and economists within TILEC dare to question the limits of their knowledge and enrich their writings by becoming acquainted with the corresponding scholarship of the other discipline. This environment has led to the delivery of innovative and fundamental research output of high caliber, while allowing TILEC to contribute to policy discussions. We intend to continue on this path