Paper #1098

Title:

Common law and civil law as pro-market adaptations

Authors:

Benito Arruñada and Veneta Andonova

Date:

June 2008

Abstract:

We argue that in the development of the Western legal system, cognitive departures are the main determinant of the optimal degree of judicial rule-making. Judicial discretion, seen here as the main distinguishing feature between both legal systems, is introduced in civil law jurisdictions to protect, rather than to limit, freedom of contract against potential judicial backlash. Such protection was unnecessary in common law countries, where free-market relations enjoyed safer judicial ground mainly due to their relatively gradual evolution, their reliance on practitioners as judges, and the earlier development of institutional checks and balances that supported private property rights. In our framework, differences in costs and benefits associated with self-interest and lack of information require a cognitive failure to be active.

Keywords:

Legal systems, judiciary, institutional development, behavior, enforcement

JEL codes:

K40, N40, O10

Area of Research:

Business Economics and Industrial Organization / Economic and Business History

Published in:

Washington University Journal of Law & Policy, 26, pp. 81-130, 2008.

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