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Legal Evolution, Contract Evolution, and Standardization

Author

Listed:
  • Perotti, Enrico
  • Gennaioli, Nicola
  • Ponzetto, Giacomo

Abstract

In a model where biased judges can distort contract enforcement, we uncover positive feedback effects between the use of innovative contracts and legal evolution that improve verifiability and contracting over time. We find, however, that the cost of judicial bias also grows over time because the unpredictable application of precedents becomes costlier as the law matures. Contract standardization avoids this cost, statically improving enforcement; but it crowds out innovative contracts, hindering legal evolution. We shed light on the large-scale commercial codification undertaken in the nineteenth century in many common-law countries during a period of booming long-distance trade.

Suggested Citation

  • Perotti, Enrico & Gennaioli, Nicola & Ponzetto, Giacomo, 2019. "Legal Evolution, Contract Evolution, and Standardization," CEPR Discussion Papers 9836, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:9836
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    References listed on IDEAS

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    1. Varian,Hal R. & Farrell,Joseph & Shapiro,Carl, 2004. "The Economics of Information Technology," Cambridge Books, Cambridge University Press, number 9780521844154, January.
    2. Luca Anderlini & Leonardo Felli & Alessandro Riboni, 2014. "Why Stare Decisis?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(4), pages 726-738, October.
    3. Claude Menard & Mary M. Shirley (ed.), 2005. "Handbook of New Institutional Economics," Springer Books, Springer, number 978-0-387-25092-2, September.
    4. Nicola Gennaioli, 2013. "Optimal Contracts With Enforcement Risk," Journal of the European Economic Association, European Economic Association, vol. 11(1), pages 59-82, February.
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    Cited by:

    1. Nicola Gennaioli & Giacomo A. M. Ponzetto, 2015. "Optimally vague contracts and the law," Economics Working Papers 1410, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2017.
    2. Nicola Gennaioli & Giacomo A. M. Ponzetto, 2015. "Contract Innovation and Legal Evolution under Imperfect Enforcement," Working Papers 836, Barcelona School of Economics.

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    More about this item

    Keywords

    Contracts; Imperfect enforcement; Legal evolution; Precedents; Standardization;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process

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