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Contingent Judicial Deference: theory and application to usury laws

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  • Bernardo Guimaraes

    (Centre for Macroeconomics (CFM)
    Sao Paulo School of Economics)

  • Bruno Meyerhof Salama

    (Sao Paulo School of Economics)

Abstract

Legislation is less likely to be enforced when courts disagree with it. Building on this premise, we propose a model of Bayesian adjudicators that use their own prior knowledge to evaluate the appropriateness of legislation. The model yields a non-monotonic relation between written rules and effectively enforced rules. Hence the enactment of legislation prohibiting something raises the probability that courts will allow related things not expressly forbidden. Moreover, legal uncertainty is greater with legislation that commands little deference from courts than with legislation that commands none. We discuss examples of effects of legislated prohibitions (and, in particular, usury laws) that are consistent with the model.

Suggested Citation

  • Bernardo Guimaraes & Bruno Meyerhof Salama, 2017. "Contingent Judicial Deference: theory and application to usury laws," Discussion Papers 1729, Centre for Macroeconomics (CFM).
    • Handle: RePEc:cfm:wpaper:1729
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    More about this item

    Keywords

    Adjudication; Courts; Prohibitions; Interest rate cap;
    All these keywords.

    JEL classification:

    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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