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Market Institutions and Judicial Rulemaking

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Author Info
Benito Arruñada ()
Veneta Andonova

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Abstract

Assuming that the degree of discretion granted to judges was the main distinguishing feature between common and civil law until the 19th century, we argue that constraining judicial discretion was instrumental in protecting freedom of contract and developing the market order in civil law. We test this hypothesis by analyzing the history of Western law. In England, a unique institutional balance between the Crown and the Parliament guaranteed private property and prompted the gradual evolution towards a legal framework that facilitated market relationships, a process that was supported by the English judiciary. On the Continent, however, legal constraints on the market were suppressed in a top-down fashion by the founders of the liberal state, often against the will of the incumbent judiciary. Constraining judicial discretion there was essential for enforcing freedom of contract and establishing the legal order of the market economy. In line with this evidence, our selection hypothesis casts doubts on the normative interpretation of empirical results that proclaim the superiority of one legal system over another, disregarding the local conditions and institutional interdependencies on which each legal system was grounded.

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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 801.

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Date of creation: Dec 2004
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Handle: RePEc:upf:upfgen:801

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Related research
Keywords: Legal Systems; Institutional Development; Law Enforcement;

Find related papers by JEL classification:
K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
N40 - Economic History - - Government, War, Law, and Regulation - - - General, International, or Comparative
O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General

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