Title: Statute Law or
Case Law?
co-authors: Luca Anderlini, (Georgetown University) and Alessandro Riboni, (University of Montreal).
status: SSRN Working Paper, STICERD Working Paper No. TE/2008/528, CESifo Working Paper No. 2358, CEPR Discussion Paper No. DP6912
Abstract: In a Case Law regime Courts
have more flexibility than in a Statute Law regime. Since Statutes are
inevitably incomplete, this confers an advantage to the Statute Law regime over
the Case Law one. However, all Courts rule ex-post, after most economic
decisions are already taken. Therefore, the advantage of flexibility for Case
Law is unavoidably paired with the potential for time-inconsistency. Under Case
Law, Courts may be tempted to behave myopically and neglect ex-ante welfare
because, ex-post, this may afford extra gains from trade for the parties
currently in Court.
The temptation to
behave myopically is traded off against the effect of a Court's ruling, as a
precedent, on the rulings of future Courts. When Case Law matures this temptation prevails and
Case Law Courts succumb to the time-inconsistency problem. Statute Law, on the
other hand pairs the lack of flexibility with the ability to commit in advance
to a given (forward looking) rule. This solves the time-inconsistency problem
afflicting the Case Law Courts. We conclude that when the nature of the legal
environment is sufficiently heterogeneous and/or changes sufficiently often,
the Case Law regime is superior: flexibility is the prevailing concern. By the
same token, when the legal environment is sufficiently homogeneous and/or does
not change very often, the Statute Law regime dominates: the ability to
overcome the time-inconsistency problem is the dominant consideration.
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