Statute Law or Case Law?

Luca Anderlini, Leonardo Felli () and Alessandro Riboni ()

No 6912, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In a Case Law regime Courts have more flexibility than in a Statute Law regime. Since Statutes are inevitably incomplete, this confers an advantage to the Statute Law regime over the Case Law one. However, all Courts rule ex-post, after most economic decisions are already taken. Therefore, the advantage of flexibility for Case Law is unavoidably paired with the potential for time-inconsistency. Under Case Law, Courts may be tempted to behave myopically and neglect ex-ante welfare because, ex-post, this may afford extra gains from trade for the parties currently in Court. The temptation to behave myopically is traded off against the effect of a Court's ruling, as a precedent, on the rulings of future Courts. When Case Law matures this temptation prevails and Case Law Courts succumb to the time-inconsistency problem. Statute Law, on the other hand pairs the lack of flexibility with the ability to commit in advance to a given (forward looking) rule. This solves the time-inconsistency problem afflicting the Case Law Courts. We conclude that when the nature of the legal environment is sufficiently heterogeneous and/or changes sufficiently often, the Case Law regime is superior: flexibility is the prevailing concern. By the same token, when the legal environment is sufficiently homogeneous and/or does not change very often, the Statute Law regime dominates: the ability to overcome the time-inconsistency problem is the dominant consideration.

Keywords: Case Law; Flexibility; Incomplete Laws; Precedents; Rigidity; Statute Law; Time-Inconsistency (search for similar items in EconPapers)
JEL-codes: C79 D74 D89 K40 L14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn and nep-law
Date: Written 2008-07

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