Competition among Legal Institutions: Implications for the Evolution of Law

Fuller (1964, p. 106) explains that law is ‘the enterprise of subjecting human conduct to the governance of rules’; that is, law includes both rules of obligation and institutions to induce recognition of, clarify, and change those rules. The actual characteristics of rules and legal institutions depend on their purpose, however. An individual can expand wealth through productive activities, particularly when they are complemented by voluntary interactions with others, including economic interaction such as cooperative production (e.g., due to specialization and the division of labour) and trade, and legal institutions to define and support private property rights facilitate both productivity and voluntary interaction. Hayek distinguishes between the ‘order of actions’ and the ‘order of rules’ (1973, p. 98), arguing that the order of rules can emerge spontaneously, just as an order of action does. Rules and their supporting institutions evolve spontaneously because individuals discover that in their voluntary interactions the rules are co-ordinated more effectively under one system or process than under another (Benson, 1989). The relative effectiveness of rules and institutions are discovered as individuals innovate and as they observe, learn from, imitate and migrate to competitive alternatives. Some of the innovations in rules may be deliberately created by co-operating individuals facing a new situation (e.g., new contract clauses) and voluntarily adopted by others, while others evolve even more spontaneously through changes in behaviour that are observed and copied.