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Measuring Unmeasurable: How to Map Laws to Numbers Using Leximetrics

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  • Konstantin A. Kholodilin
  • Linus Pfeiffer

Abstract

As the institutional literature convincingly shows, socioeconomic phenomena are to a large extent shaped by the formal institutions, that is, legal acts (laws and ordinances). However, the latter are formulated in a specific language that is difficult to understand, let alone to measure. However, since the early 1990s, a whole branch of economic analysis of governmental regulations has evolved. It is known as leximetrics, i.e., the measuring of laws. It covers a wide range of economic sectors, such as financial, labor, housing, and product markets, among others. The two most popular methods are codification and surveys. Under the first method, the legal texts are analyzed, relevant provisions extracted, and numeric values assigned depending on these provisions. Under the surveys method, local experts are asked to provide their assessment of currently valid legal provisions and sometimes also their enforcement. In both cases, the legal texts are mapped onto real-valued indices with the objective of gauging the intensity of governmental regulations. These indices can be and are successfully used to explain the economic phenomena. This study provides a comprehensive overview of the leximetric literature and demonstrates interdependences between different types of governmental regulations.

Suggested Citation

  • Konstantin A. Kholodilin & Linus Pfeiffer, 2021. "Measuring Unmeasurable: How to Map Laws to Numbers Using Leximetrics," Discussion Papers of DIW Berlin 1933, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp1933
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    More about this item

    Keywords

    Leximetrics; governmental regulations; economics;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • K25 - Law and Economics - - Regulation and Business Law - - - Real Estate Law
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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