Working Paper: CEPR ID: DP6912
Authors: Luca Anderlini; Leonardo Felli; Alessandro Riboni
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.
Keywords: case law; flexibility; incomplete laws; precedents; rigidity; statute law; time inconsistency
JEL Codes: C79; D74; D89; K40; L14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Legal environment (case law) (K13) | Time inconsistency problem (D15) |
| Time inconsistency problem (D15) | Myopic decisions (D91) |
| Myopic decisions (D91) | Weak rulings (K40) |
| Weak rulings (K40) | Undercut future efficiency (D61) |
| Legal environment (statute law) (K20) | Commitment to predetermined rules (D71) |
| Commitment to predetermined rules (D71) | Mitigate time inconsistency issue (D15) |
| Heterogeneous legal environments (P37) | Case law outperforms statute law (K41) |
| Stable environments (C62) | Statute law prevails (K19) |
| Degree of heterogeneity in cases (C46) | Optimal legal regime (H21) |