IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Legal Evolution and Contract Evolution under Imperfect Enforcement

Listed author(s):
  • Gennaioli, Nicola
  • Ponzetto, Giacomo AM

We model optimal contracts and the evolution of precedents by introducing imperfect enforcement into a standard incomplete contracts setup. We assume that biased trial courts can refuse to verify novel evidence but are bound to respect precedents, namely to verify evidence that other judges verified in past cases. Despite judicial biases, optimal contracts are innovative (contingent on both precedents and novel evidence). Noisy evidence and judicial biases, however, introduce enforcement risk and cause incentives to be low-powered. The use of innovative contracts is key. Their litigation refines the law and makes it more informative, so enforcement improves. As a result, parties can in turn write more complete contracts, which enable higher- powered incentives and improve welfare. This beneficial mechanism is hampered by judicial bias, which slows down legal evolution and causes enforcement risk to persist for a long time.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=10700
Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 10700.

as
in new window

Length:
Date of creation: Jul 2015
Handle: RePEc:cpr:ceprdp:10700
Contact details of provider: Postal:
Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.

Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820

Order Information: Email:


References listed on IDEAS
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.:

as
in new window


  1. Niblett, Anthony, 2013. "Tracking inconsistent judicial behavior," International Review of Law and Economics, Elsevier, vol. 34(C), pages 9-20.
  2. Edward L. Glaeser & Andrei Shleifer, 2003. "The Rise of the Regulatory State," Journal of Economic Literature, American Economic Association, vol. 41(2), pages 401-425, June.
  3. Nicola Gennaioli & Andrei Shleifer, 2007. "The Evolution of Common Law," Journal of Political Economy, University of Chicago Press, vol. 115, pages 43-68.
  4. 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.
  5. Patricio A. Fernandez & Giacomo A. M. Ponzetto, 2012. "Stare Decisis: Rhetoric and Substance," Journal of Law, Economics and Organization, Oxford University Press, vol. 28(2), pages 313-336.
  6. repec:hrv:faseco:30747194 is not listed on IDEAS
  7. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
  8. Anthony Niblett & Richard A. Posner & Andrei Shleifer, 2010. "The Evolution of a Legal Rule," The Journal of Legal Studies, University of Chicago Press, vol. 39(2), pages 325-358.
  9. repec:hrv:faseco:30747197 is not listed on IDEAS
  10. Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, 04.
  11. Gennaioli, Nicola & Perotti, Enrico C & Ponzetto, Giacomo AM, 2014. "Legal Evolution, Contract Evolution, and Standardization," CEPR Discussion Papers 9836, C.E.P.R. Discussion Papers.
  12. Jun Qian & Philip E. Strahan, 2007. "How Laws and Institutions Shape Financial Contracts: The Case of Bank Loans," Journal of Finance, American Finance Association, vol. 62(6), pages 2803-2834, December.
  13. Giacomo A. M. Ponzetto & Patricio A. Fernandez, 2008. "Case Law versus Statute Law: An Evolutionary Comparison," The Journal of Legal Studies, University of Chicago Press, vol. 37(2), pages 379-430, 06.
  14. repec:hrv:faseco:30747162 is not listed on IDEAS
  15. Glaeser, Edward & Scheinkman, Jose & Shleifer, Andrei, 2003. "The injustice of inequality," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 199-222, January.
  16. Bond Philip, 2009. "Contracting in the Presence of Judicial Agency," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-34, November.
  17. Townsend, Robert M., 1979. "Optimal contracts and competitive markets with costly state verification," Journal of Economic Theory, Elsevier, vol. 21(2), pages 265-293, October.
  18. Nicola Gennaioli, 2013. "Optimal Contracts With Enforcement Risk," Journal of the European Economic Association, European Economic Association, vol. 11(1), pages 59-82, 02.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:10700. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.