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Statute Law or Case Law?

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  • Luca Anderlini
  • Leonardo Felli
  • Alessandro Riboni

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.

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Bibliographic Info

Paper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Theoretical Economics Paper Series with number /2008/528.

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Date of creation: Aug 2008
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Handle: RePEc:cep:stitep:/2008/528

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Web page: http://sticerd.lse.ac.uk/_new/publications/default.asp

Related research

Keywords: Statute Law; Case Law; Flexibility; Rigidity; Time-Inconsistency; Precedents.;

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References

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Citations

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Cited by:
  1. Luca Anderlini & Leonardo Felli & Andrew Postlewaite, 2006. "Should courts always enforce what contracting parties write?," LSE Research Online Documents on Economics 4677, London School of Economics and Political Science, LSE Library.
  2. Nicola Gennaioli & Enrico Perotti, 2012. "Standardized Enforcement: Access to Justice vs. Contractual Innovation," Working Papers 652, Barcelona Graduate School of Economics.
  3. Anderlini, Luca & Felli, Leonardo & Riboni, Alessandro, 2010. "Why Stare Decisis ?," Economics Papers from University Paris Dauphine 123456789/7720, Paris Dauphine University.
  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., 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.
  6. 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.

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