IDEAS home Printed from https://ideas.repec.org/p/ehl/lserod/4433.html
   My bibliography  Save this paper

Statute law or case law?

Author

Listed:
  • Anderlini, Luca
  • Felli, Leonardo
  • Riboni, A.

Abstract

We embed a simple contracting model with ex-ante investments in which there is scope for Court intervention in a full-blown open-ended dynamic setting. The underlying preferences of both Courts and contracting parties are fully forward looking and unbiased. Our point of departure is instead the observation that when Courts intervene in a contractual relationship they obviously do so at the ex-post stage. This introduces a natural tension between actual Court behavior and ex-ante optimal Court decisions. In a Case Law regime each Court is tempted to behave myopically because, ex-post, this affords current extra gains from trade. This temptation is traded off against the effect of its ruling, as a precedent, on future ones. We model the Statute Law regime in an extreme way: no discretion is left to the Courts which behave according to fixed rules. This solves the time-inconsistency problem afflicting the Case Law Courts, but is costly because of its lack of flexibility. We find that when the nature of the environment changes sufficiently often through time the Case Law regime is superior, while when the environment does not change very often the Statute Law regime dominates. Overall, our findings support the view that the Case Law regime is superior in fields in which innovation, and hence change, is central (e.g. finance), while the Codified Law regime is superior in more slow-changing ones (e.g. inheritance law).

Suggested Citation

  • Anderlini, Luca & Felli, Leonardo & Riboni, A., 2008. "Statute law or case law?," LSE Research Online Documents on Economics 4433, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:4433
    as

    Download full text from publisher

    File URL: http://eprints.lse.ac.uk/4433/
    File Function: Open access version.
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Spitzer, Matt & Talley, Eric, 2000. "Judicial Auditing," The Journal of Legal Studies, University of Chicago Press, vol. 29(2), pages 649-683, June.
    2. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-1158, December.
    3. Gennaioli, Nicola & Shleifer, Andrei, 2007. "Overruling and the instability of law," Journal of Comparative Economics, Elsevier, vol. 35(2), pages 309-328, June.
    4. Anderlini Luca & Felli Leonardo & Postlewaite Andrew, 2011. "Should Courts Always Enforce What Contracting Parties Write?," Review of Law & Economics, De Gruyter, vol. 7(1), pages 14-28, February.
    5. Edward L. Glaeser & Andrei Shleifer, 2002. "Legal Origins," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(4), pages 1193-1229.
    6. Kaplow, Louis & Shavell, Steven, 2002. "Economic analysis of law," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 25, pages 1661-1784, Elsevier.
    7. Obstfeld, Maurice, 1997. "Destabilizing effects of exchange-rate escape clauses," Journal of International Economics, Elsevier, vol. 43(1-2), pages 61-77, August.
    8. Davide Lombardo & Marco Pagano, 1999. "Legal Determinants of the Return on Equity," CSEF Working Papers 24, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 01 Dec 2000.
    9. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-1150, July.
    10. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    11. repec:ner:ucllon:http://discovery.ucl.ac.uk/17678/ is not listed on IDEAS
    12. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer & Robert Vishny, 2002. "Investor Protection and Corporate Valuation," Journal of Finance, American Finance Association, vol. 57(3), pages 1147-1170, June.
    13. William M. Landes, 1974. "An Economic Analysis of the Courts," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 164-214, National Bureau of Economic Research, Inc.
    14. Maskin, Eric & Tirole, Jean, 2001. "Markov Perfect Equilibrium: I. Observable Actions," Journal of Economic Theory, Elsevier, vol. 100(2), pages 191-219, October.
    15. Giacomo A. M. Ponzetto & Patricio A. Fernandez, 2008. "Case Law versus Statute Law: An Evolutionary Comparison," The Journal of Legal Studies, University of Chicago Press, vol. 37(2), pages 379-430, June.
    16. Raghuram G. Rajan & Luigi Zingales, 1998. "Power in a Theory of the Firm," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(2), pages 387-432.
    17. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, April.
    18. Anthony Niblett & Richard A. Posner & Andrei Shleifer, 2010. "The Evolution of a Legal Rule," The Journal of Legal Studies, University of Chicago Press, vol. 39(2), pages 325-358.
    19. Susan Athey & Andrew Atkeson & Patrick J. Kehoe, 2005. "The Optimal Degree of Discretion in Monetary Policy," Econometrica, Econometric Society, vol. 73(5), pages 1431-1475, September.
    20. Phelan, Christopher, 2006. "Public trust and government betrayal," Journal of Economic Theory, Elsevier, vol. 130(1), pages 27-43, September.
    21. Martin J. Osborne & Ariel Rubinstein, 1994. "A Course in Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262650401, April.
    22. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
    23. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    24. Gilat Levy, 2005. "Careerist Judges," RAND Journal of Economics, The RAND Corporation, vol. 36(2), pages 275-297, Summer.
    25. Steven Shavell, 2007. "Optimal Discretion in the Application of Rules," American Law and Economics Review, American Law and Economics Association, vol. 9(1), pages 175-194.
    26. Naomi R. Lamoreaux & Jean-Laurent Rosenthal, 2004. "Legal Regime and Business's Organizational Choice: A Comparison of France and the United States," NBER Working Papers 10288, National Bureau of Economic Research, Inc.
    27. Shavell, Steven, 1995. "The Appeals Process as a Means of Error Correction," The Journal of Legal Studies, University of Chicago Press, vol. 24(2), pages 379-426, June.
    28. Daughety, Andrew F & Reinganum, Jennifer F, 1999. "Stampede to Judgment: Persuasive Influence and Herding Behavior by Courts," American Law and Economics Review, American Law and Economics Association, vol. 1(1-2), pages 158-189, Fall.
    29. Legros, Patrick & Newman, Andrew F., 2002. "Courts, contracts, and interference," European Economic Review, Elsevier, vol. 46(4-5), pages 734-744, May.
    30. Anderlini, Luca & Postlewaite, Andrew & Felli, Leonardo, 2006. "Should courts always enforce what contracting parties write? this paper replaces TE/2003/464," LSE Research Online Documents on Economics 58189, London School of Economics and Political Science, LSE Library.
    31. McCahery, Joseph A. & Moerland, Piet & Raaijmakers, Theo & Renneboog, Luc (ed.), 2002. "Corporate Governance Regimes: Convergence and Diversity," OUP Catalogue, Oxford University Press, number 9780199247875.
    32. Scherer, F M, 1972. "Nordhaus' Theory of Optimal Patent Life: A Geometric Reinterpretation," American Economic Review, American Economic Association, vol. 62(3), pages 422-427, June.
    33. Suzanne Scotchmer, 2006. "Innovation and Incentives," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262693437, April.
    34. Hadfield, Gillian K., 2008. "The levers of legal design: Institutional determinants of the quality of law," Journal of Comparative Economics, Elsevier, vol. 36(1), pages 43-73, March.
    35. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
    36. Nicola Gennaioli & Andrei Shleifer, 2005. "The Evolution of Precedent," NBER Working Papers 11265, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nicola Gennaioli & Enrico Perotti, 2009. "Standardized enforcement: Access to justice vs contractual innovation," Economics Working Papers 1329, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2012.
    2. Luca Anderlini & Leonardo Felli & Alessandro Riboni, 2014. "Why Stare Decisis?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(4), pages 726-738, October.
    3. Anderlini Luca & Felli Leonardo & Postlewaite Andrew, 2011. "Should Courts Always Enforce What Contracting Parties Write?," Review of Law & Economics, De Gruyter, vol. 7(1), pages 14-28, February.
    4. Leonardo Felli & Giovanni Immordino & Alessandro Riboni & Luca Anderlini, 2008. "Legal Origins and Creative Destruction," 2008 Meeting Papers 733, Society for Economic Dynamics.
    5. Hadfield, Gillian K., 2011. "The dynamic quality of law: The role of judicial incentives and legal human capital in the adaptation of law," Journal of Economic Behavior & Organization, Elsevier, vol. 79(1-2), pages 80-94, June.
    6. repec:dau:papers:123456789/7720 is not listed on IDEAS
    7. Hadfield, Gillian K., 2008. "The levers of legal design: Institutional determinants of the quality of law," Journal of Comparative Economics, Elsevier, vol. 36(1), pages 43-73, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Luca Anderlini & Leonardo Felli & Alessandro Riboni, 2014. "Why Stare Decisis?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(4), pages 726-738, October.
    2. Anderlini, Luca & Felli, Leonardo & Riboni, Alessandro, 2020. "Legal efficiency and consistency," European Economic Review, Elsevier, vol. 121(C).
    3. repec:dau:papers:123456789/7720 is not listed on IDEAS
    4. Andrew Postlewaite, 2007. "Courts of Law and Unforeseen Contingencies," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 23(3), pages 662-684, October.
    5. Sergey Stepanov, 2010. "Shareholder access to manager‐biased courts and the monitoring/litigation trade‐off," RAND Journal of Economics, RAND Corporation, vol. 41(2), pages 270-300, June.
    6. Committee, Nobel Prize, 2016. "Oliver Hart and Bengt Holmström: Contract Theory," Nobel Prize in Economics documents 2016-1, Nobel Prize Committee.
    7. Eduard Marinov, 2016. "The 2016 Nobel Prize in Economics," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 6, pages 97-149.
    8. Eitan Goldman & Gary Gorton, 2000. "The Visible Hand, the Invisible Hand and Efficiency," NBER Working Papers 7587, National Bureau of Economic Research, Inc.
    9. Burkart, Mike & Panunzi, Fausto, 2006. "Agency conflicts, ownership concentration, and legal shareholder protection," Journal of Financial Intermediation, Elsevier, vol. 15(1), pages 1-31, January.
    10. Garmaise, Mark J & Liu, Jun, 2005. "Corruption, Firm Governance, and the Cost of Capital," University of California at Los Angeles, Anderson Graduate School of Management qt29403706, Anderson Graduate School of Management, UCLA.
    11. Andrei Shleifer & Florencio Lopez-de-Silanes & Rafael La Porta, 2008. "The Economic Consequences of Legal Origins," Journal of Economic Literature, American Economic Association, vol. 46(2), pages 285-332, June.
    12. Besley, Timothy & Ghatak, Maitreesh, 2010. "Property Rights and Economic Development," Handbook of Development Economics, in: Dani Rodrik & Mark Rosenzweig (ed.), Handbook of Development Economics, edition 1, volume 5, chapter 0, pages 4525-4595, Elsevier.
    13. Anthony Niblett, 2017. "On the efficiency of the common law: an application to the recovery of rewards," European Journal of Law and Economics, Springer, vol. 43(3), pages 393-417, June.
    14. Hadfield, Gillian K., 2011. "The dynamic quality of law: The role of judicial incentives and legal human capital in the adaptation of law," Journal of Economic Behavior & Organization, Elsevier, vol. 79(1-2), pages 80-94, June.
    15. Djankov, Simeon & Glaeser, Edward & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2003. "The new comparative economics," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 595-619, December.
    16. Macchiavello, Rocco, 2007. "Financial Constraints and the Costs and Benefits of Vertical Integration," CEPR Discussion Papers 6104, C.E.P.R. Discussion Papers.
    17. Krishna B. Kumar & Raghuram G. Rajan & Luigi Zingales, "undated". "What Determines Firm Size?," CRSP working papers 496, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    18. Bjuggren, Per-Olof & Högberg, Andreas, 2012. "Legal Origin and Firm Size Effects Around the World," Ratio Working Papers 191, The Ratio Institute.
    19. Luigi Zingales, 1997. "Corporate Governance," NBER Working Papers 6309, National Bureau of Economic Research, Inc.
    20. Gatzer, Sebastian & Hoang, Daniel & Ruckes, Martin, 2015. "Internal Capital Markets and Diversified Firms: Theory and Practice," EconStor Preprints 169432, ZBW - Leibniz Information Centre for Economics.
    21. Klapper, Leora F. & Love, Inessa, 2004. "Corporate governance, investor protection, and performance in emerging markets," Journal of Corporate Finance, Elsevier, vol. 10(5), pages 703-728, November.

    More about this item

    Keywords

    Court Intervention; Statute Law; Case Law; Rigidity; Time-Inconsistency; Precedents.;
    All these keywords.

    JEL classification:

    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ehl:lserod:4433. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: LSERO Manager (email available below). General contact details of provider: https://edirc.repec.org/data/lsepsuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.