choice of law in a market setting. Fostering legislative competition through party choice as long as social and private costs coincide(I), the conflict of laws should also be relied upon to assert a regulatory function in cases of cross-border externalities (ID) I Choice of law as an instrument of inter-jurisdictional competition 6. Reversal of perspectives. Traditional'conflicts'rhetoric suggests that choice of law has a peace-keeping function between rival, mutually exclusive regulatory claims. The various theoretical models reinforce this impression: multilateralism carries a policy of alignment in order to produce decisional harmony out of chaos, whereas neo-statutist theories tend to pursue an agenda of political deference designed to induce reciprocity. Contemporary economic analysis offers a reverse perspective, in which the idea that diversity is a source of disorder to be smoothed out wherever possible, is superseded by the conviction that competition between national legislators is basically salutary. 38 Far removed from its trad itional justifications, party choice in cross-border transactions is viewed through economic lenses as instrumental in stimulating such competition, both in a federal context, where it promotes market integration(A)and, more controversially, on a global level, where it can contribute to efficient horizontal allocation of regulatory authority(B) LA Choice of law and the economics of federalism 7. Three new uses for choice of law. In a federal or vertically integrated structure, inter juris ictional competition appears an alternative to centralized regulation. The theme of regulatory competition, with the correlative question of the optimal level at which regulation should take place, has only recently begun to appear as a subject for debate in the European Union, 9 where it is more common to think of legal diversity as being at odds with the very idea of an internal market. 40 Borrowed from US scholarship, 4 the economics of federalism now raises new issues both as to the ways in which legislative authority should be allocated 38 While emphasising the importance of the conflict of laws, this perspective also reinstates comparative law as a source of informed choice See fora first, excellent, account, Wolfgang Kerber, "Interjurisdictional Competition within the (2000); A Ogus, ' Competition between National Legal Systems: A Contribution of Economic Analysis 3 Eichenberg on the concept of FoCJ'(functional, overlapping, competing jurisdictions), in"FOCJ: Competitive Governments for Europe, 16 IntT Rev L& Econ 315(1996) Indeed, until recently, a strong trend towards centralisation of regulatory authority within the EU tended to make diversity suspect; integration seemed to imply harmonisation at the highest level, and the attendant'death'of conflicts and comparative law(see, for the latter, Ch von Bar, From Principles to Codification: Prospects for European Private Law, 8 Colum Eur L 379(2002), Symposium on Methodology and Epistemology of Comparative Law, Brussels, October 2002, to be published by Hart Publishing) The volume of literature on this subject is impressive. See, in particular, the special issue of the Journal of International Economic La(2000), devoted to Regulatory Competition in Focus, with contributions by Daniel C Esty, Richard L Revesz, Damien Gerardin, Jonathan R Macey, Alan O Sykes and Joel P Trachtman, concerning a wide range of different substantive fields. See also Ulen, 'Economic and Public Choice Forces in Federalism, 6 Geo Mason L Rev 921; Frank H Easterbrook, Federa lism and European Business Law, 14 Intt Revl d econ 125choice of law in a market setting. Fostering legislative competition through party choice as long as social and private costs coincide (I), the conflict of laws should also be relied upon to assert a regulatory function in cases of cross-border externalities (II). I Choice of law as an instrument of inter-jurisdictional competition 6. Reversal of perspectives. Traditional ‘conflicts’ rhetoric suggests that choice of law has a peace-keeping function between rival, mutually exclusive regulatory claims. The various theoretical models reinforce this impression: multilateralism carries a policy of alignment in order to produce decisional harmony out of chaos, whereas neo-statutist theories tend to pursue an agenda of political deference designed to induce reciprocity. Contemporary economic analysis offers a reverse perspective, in which the idea that diversity is a source of disorder to be smoothed out wherever possible, is superseded by the conviction that competition between national legislators is basically salutary.38 Far removed from its traditional justifications, party choice in cross-border transactions is viewed through economic lenses as instrumental in stimulating such competition, both in a federal context, where it promotes market integration (A) and, more controversially, on a global level, where it can contribute to efficient horizontal allocation of regulatory authority (B). I.A Choice of law and the economics of federalism 7. Three new uses for choice of law. In a federal or vertically integrated structure, inter￾jurisdictional competition appears an alternative to centralized regulation. The theme of regulatory competition, with the correlative question of the optimal level at which regulation should take place, has only recently begun to appear as a subject for debate in the European Union,39 where it is more common to think of legal diversity as being at odds with the very idea of an internal market.40 Borrowed from US scholarship,41 the economics of federalism now raises new issues both as to the ways in which legislative authority should be allocated 38 While emphasising the importance of the conflict of laws, this perspective also reinstates comparative law as a source of informed choice. 39 See for a first, excellent, account, Wolfgang Kerber, ‘Interjurisdictional Competition within the European Union’, in The Deregulation of Global Markets, Weimar Symposium 1998, Fordham Int’l LJ 217 (2000); A Ogus, ‘Competition between National Legal Systems: A Contribution of Economic Analysis to Comparative Law’, 48 ICLQ 405 (1999). On the complex multi-level character of such competition, see Frey & Eichenberg on the concept of ‘FOCJ’ (functional, overlapping, competing jurisdictions), in ‘FOCJ: Competitive Governments for Europe’, 16 Int’l Rev L & Econ 315 (1996). 40 Indeed, until recently, a strong trend towards centralisation of regulatory authority within the EU tended to make diversity suspect; integration seemed to imply harmonisation at the highest level, and the attendant ‘death’ of conflicts and comparative law (see, for the latter, Ch von Bar, ‘From Principles to Codification: Prospects for European Private Law’, 8 Colum J Eur L 379 (2002); Symposium on Methodology and Epistemology of Comparative Law, Brussels, October 2002, to be published by Hart Publishing). 41 The volume of literature on this subject is impressive. See, in particular, the special issue of the Journal of International Economic Law (2000), devoted to ‘Regulatory Competition in Focus’, with contributions by Daniel C Esty, Richard L Revesz, Damien Gerardin, Jonathan R Macey, Alan O Sykes and Joel P Trachtman, concerning a wide range of different substantive fields. See also Ulen, ‘Economic and Public Choice Forces in Federalism’, 6 Geo Mason L Rev 921; Frank H Easterbrook, ‘Federalism and European Business Law’, 14 Int'l Rev L & Econ 125