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Legal Efficiency and Consistency

Luca Anderlini, Leonardo Felli () and Alessandro Riboni ()
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Leonardo Felli: Department of Economics, London School of Economics,

No gueconwpa~18-18-12, Working Papers from Georgetown University, Department of Economics

Abstract: We analyze the efficiency and consistency of courts’ decisions under common and civil law. As a motivating example, we study the enforcement of property rights in courts. Judges are of two types: some judges are conservative and mechanically follow the precedent or the statute, while others maximize social welfare. The civil law and common law traditions have different centers of authority (legislatures vs. judges), but they also differ with respect to the timing of legal decisions (ex-ante vs. ex-post). When legal decisions occur ex-post, law-makers are biased even if they are welfare-maximizers. Such an ex-post bias has implications on the relative efficiency and consistency of each legal system. If the economic environment is fixed, we find that legal certainty is lower under civil law than under common law. Common law achieves higher expected welfare than civil law regime when the proportion of conservative judges is neither too low nor too high, and judges are sufficiently forward-looking. In changing economic environments, civil law courts do not respond to economic shocks. Conversely, common law courts change the law only if shocks are persistent. Shock persistence is what makes common law more likely to dominate civil law because of its greater adaptability.

Keywords: Property Right Protection; Legal Origin; Time-Inconsistency; Investment; Legal Adaptability. (search for similar items in EconPapers)
JEL-codes: D23 D86 C79 K12 K13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hpe and nep-law
Date: 2018-09-13
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