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Statute Law or Case Law?

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  • Anderlini, Luca
  • Felli, Leonardo
  • Riboni, Alessandro

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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6912.

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Date of creation: Jul 2008
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Handle: RePEc:cpr:ceprdp:6912

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

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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. Luca Anderlini & Leonardo Felli & Alessandro Riboni, 2010. "Why Stare Decisis?," Levine's Working Paper Archive 661465000000000068, David K. Levine.
  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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