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The Economics of Legal Harmonization

  • Emanuela Carbonara

    (University of Bologna)

  • Francesco Parisi

    (George Mason University School of Law)

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    The global legal landscape is undergoing substantial transformations, adapting to an increasingly global market economy. Differences between legal systems create obstacles to transnational commerce. Countries can reduce these legal differences through non-cooperative and cooperative adaptation processes, fostering networks of trade that link diverse legal traditions. In this article, we study the process of legal adaptation, looking at non-cooperative and cooperative solutions that can alternatively lead to legal transplantation, harmonization and unification. The presence of adaptation and switching costs renders unification extremely difficult. In the general case, cooperative solutions reduce differences to a greater extent than non-cooperative solutions, but rarely lead to complete legal unification. We consider the case of endogenous switching costs and show that when countries have the possibility to reduce their own switching costs to facilitate harmonization, they may actually choose to raise them. This may lead to the paradox that countries engaging in cooperative harmonization end up with less harmonization than those that pursued non-cooperative strategies. This explains why differences are often bridged by private codifications and by the evolving norms of the lex mercatoria.

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    File URL: http://www.bepress.com/cgi/viewcontent.cgi?article=1149&context=gwp
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    Paper provided by Berkeley Electronic Press in its series German Working Papers in Law and Economics with number 2006-1-1149.

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    Handle: RePEc:bep:dewple:2006-1-1149
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    1. Fudenberg, Drew & Tirole, Jean, 1984. "The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look," American Economic Review, American Economic Association, vol. 74(2), pages 361-66, May.
    2. Thomson, W., 1989. "Cooperative Models Of Bargaining," RCER Working Papers 177, University of Rochester - Center for Economic Research (RCER).
    3. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
    4. Fon, Vincy & Parisi, Francesco, 2003. "Stability and Change in International Customary Law," Berkeley Olin Program in Law & Economics, Working Paper Series qt0t46t705, Berkeley Olin Program in Law & Economics.
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