Judges' Cognition and Market Order

Benito Arruñada and Andonova Veneta
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Andonova Veneta: Universidad de los Andes

Review of Law & Economics, 2008, vol. 4, issue 2, 665-692

Abstract: We argue that during the crystallization of common and civil law in the 19th century, the degree of discretion in judicial rulemaking, albeit influenced by the comparative advantages of both legislative and judicial rulemaking, was mainly determined by the anti-market biases of the judiciary. The different degrees of judicial discretion in both legal traditions were thus adapted to different circumstances, mainly the unique, market-friendly, evolutionary transition enjoyed by English common law as opposed to the revolutionary environment of the civil law. On the Continent, constraining judicial discretion was essential for enforcing freedom of contract and establishing a market economy. The long-term confluence of both branches of the Western legal system towards lesser freedom of contract is explained as a consequence of increased perceptions of exogenous risks and changes in the political system. These favored the adoption of sharing solutions that interfered with market-supporting institutions and removed the cognitive advantage of parliaments and political leaders.

Date: 2008
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DOI: 10.2202/1555-5879.1167

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