Paper #768

Title:

Judges' cognition and market order

Authors:

Benito Arruñada and Veneta Andonova

Date:

July 2004 (Revised: January 2008)

Abstract:

We argue that during the crystallization of common and civil law in the 19th century, the optimal degree of discretion in judicial rulemaking, albeit influenced by the comparative advantages of both legislative and judicial rulemaking, was mainly determined by the anti-market biases of the judiciary. The different degrees of judicial discretion adopted in both legal traditions were thus optimally adapted to different circumstances, mainly rooted in the unique, market-friendly, evolutionary transition enjoyed by English common law as opposed to the revolutionary environment of the civil law. On the Continent, constraining judicial discretion was essential for enforcing freedom of contract and establishing a market economy. The ongoing debasement of pro-market fundamentals in both branches of the Western legal system is explained from this perspective as a consequence of increased perceptions of exogenous risks and changes in the political system, which favored the adoption of sharing solutions and removed the cognitive advantage of parliaments and political leaders.

Keywords:

Legal systems, institutional development, law enforcement

JEL codes:

K40, N40, O10

Area of Research:

Business Economics and Industrial Organization

Published in:

Review of Law and Economics, 4(2), 2008, 665-92

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