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The Evolution of a Legal Rule

  • Anthony Niblett
  • Richard Posner
  • Andrei Shleifer

The efficiency of common law rules is central to achieving efficient resource allocation in a market economy. While many theories suggest reasons why judge-made law should tend toward efficient rules, the question whether the common law actually does converge in commercial areas has remained empirically untested. We create a dataset of 465 state-court appellate decisions involving the application of the Economic Loss Rule in construction disputes and track the evolution of law in this area from 1970 to 2005. We find that over this period the law did not converge to any stable resting point and evolved differently in different states. We find that legal evolution is influenced by plaintiffs' claims, the relative economic power of the parties, and nonbinding federal precedent.

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File URL: http://www.nber.org/papers/w13856.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13856.

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Date of creation: Mar 2008
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Publication status: published as 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.
Handle: RePEc:nbr:nberwo:13856
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  1. Theodore Eisenberg & Henry S. Farber, 1996. "The Litigious Plaintiff Hypothesis: Case Selection and Resolution," NBER Working Papers 5649, National Bureau of Economic Research, Inc.
  2. Robert Cooter & Lewis Kornhauser & David Lane, 1979. "Liability Rules, Limited Information, and the Role of Precedent," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 366-373, Spring.
  3. Shavell, Steven, 1996. "Any Frequency of Plaintiff Victory at Trial Is Possible," The Journal of Legal Studies, University of Chicago Press, vol. 25(2), pages 493-501, June.
  4. Gomez, Fernando & Schafer, Hans-Bernd, 2007. "The law and economics of pure economic loss: Introduction to the special issue of the International Review of Law and Economics," International Review of Law and Economics, Elsevier, vol. 27(1), pages 1-7, March.
  5. Goldberg, Victor P, 1994. "Recovery for Economic Loss following the Exxon Valdez Oil Spill," The Journal of Legal Studies, University of Chicago Press, vol. 23(1), pages 1-39, January.
  6. George L. Priest & Benjamin Klein, 1984. "The Selection of Disputes for Litigation," The Journal of Legal Studies, University of Chicago Press, vol. 13(1), pages 1-56, January.
  7. Dari-Mattiacci, Giuseppe & Schafer, Hans-Bernd, 2007. "The core of pure economic loss," International Review of Law and Economics, Elsevier, vol. 27(1), pages 8-28, March.
  8. Kessler, Daniel & Meites, Thomas & Miller, Geoffrey P, 1996. "Explaining Deviations from the Fifty-Percent Rule: A Multimodal Approach to the Selection of Cases for Litigation," The Journal of Legal Studies, University of Chicago Press, vol. 25(1), pages 233-59, January.
  9. Nicola Gennaioli & Andrei Shleifer, 2007. "The Evolution of Common Law," Journal of Political Economy, University of Chicago Press, vol. 115, pages 43-68.
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