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Statute Law or Case Law?

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Author Info
Anderlini, Luca
Felli, Leonardo
Riboni, Alessandro

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

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Find related papers by JEL classification:
C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances
D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other
K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Elena Vigna, 2009. "Mean-variance inefficiency of CRRA and CARA utility functions for portfolio selection in defined contribution pension schemes," Carlo Alberto Notebooks 108, Collegio Carlo Alberto, revised 2009. [Downloadable!]
  2. Luca Anderlini & Leonardo Felli & Andrew Postlewaite, . "Should Courts Always Enforce What Contracting Parties Write?," Working Papers gueconwpa~06-06-07, Georgetown University, Department of Economics. [Downloadable!]
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