IDEAS home Printed from https://ideas.repec.org/p/ioe/doctra/352.html
   My bibliography  Save this paper

A Dynamic Theory of Common Law Courts

Author

Listed:
  • Álvaro Bustos

Abstract

We develop a model that determines when and how time-consistent and forward-looking courts should set and reform legal rules (a normative theory for dynamically efficient courts). We explicitly take into account that: 1) the optimal rules most likely are not the same for all periods of time; 2) courts can only rule at trials; 3) the enforcement strategies of courts determine the litigation strategies of present and future parties in conflict; and 4) the parties in conflict can contract around the rules. As main results, we show that: 1) courts should set those rules that maximize the value of the present parties in conflict (statically efficient rules) only under extreme circumstances; 2) if legal rules are the only control variables, courts should adjust the unconstrained first-best rules for society in order to give the parties incentives to partially correct an inefficient frequency of litigation; 3) there always exists a distribution of the litigation expenses between the parties that generates an optimal frequency of trials in which case courts don't need to bias the rules. The model allows us to analyze the social desirability of two commonly suggested strategies to increase the frequency of shareholders' litigation: adding ambiguity to the law or involving public prosecutors as the N.Y.A.G.'s office or agencies as the S.E.C. In addition, the model also allows us to discuss when courts should set contingent rules (rules that adapt to the states of nature) instead of rigid rules (rules that don't adapt to the states of nature).

Suggested Citation

  • Álvaro Bustos, 2008. "A Dynamic Theory of Common Law Courts," Documentos de Trabajo 352, Instituto de Economia. Pontificia Universidad Católica de Chile..
  • Handle: RePEc:ioe:doctra:352
    as

    Download full text from publisher

    File URL: http://www.economia.uc.cl/docs/dt_352.pdf
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:dau:papers:123456789/7720 is not listed on IDEAS
    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. Giovanni Maggi & Robert W. Staiger, 2008. "On the Role and Design of Dispute Settlement Procedures in International Trade Agreements," NBER Working Papers 14067, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Efficiency of the law; myopic courts; forward-looking courts; optimal enforcement strategies; optimal frequency of trials; rigid and contingent rules;
    All these keywords.

    JEL classification:

    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ioe:doctra:352. 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: (Jaime Casassus). General contact details of provider: http://edirc.repec.org/data/iepuccl.html .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.