Uncertainty of Law and the Legal Process · Uncertainty of Law and the Legal Process Giuseppe...

Uncertainty of Law and

the Legal Process

Giuseppe Dari-MattiacciBruno Deffains

Cambridge, November 23rd, 2006

The idea

“The uncertainty of legal proceedings is a notion

so generally accepted [...] that he who should

attempt to refute it would be looked upon as a

man, who was [...] incapable of discernment [...].

[It] must be imputed to the defects of human

laws in general, and [is] not owing to any

particular ill construction of the [legal] system.”

Blackstone’s Commentaries of the laws of England (1765-1769)

Scope of the analysis

We do not examine the efficiency of legal rules

We focus on the efficiency of the process of

rulemaking

Producing efficient rules

vs.

Producing rules efficiently

The idea

Uncertainty of law generates litigation, which in

turns makes the law more certain

We study the interaction of legislation and

litigation

Pistor and Xu (2003): the law is

– complete when all relevant applications of the

law are unambiguously stipulated.

– incomplete when it contains gaps or its

boundaries are not clear.

The literature

The literature

Kaplow (1997): legal systems have to find an

equilibrium between over-detailed laws and

ambiguous terms.

Landes and Posner (1976), Posner (1992): body

of precedent can be analogized to a capital stock

that depreciates over time

The literature

– Rules v. standards (Ehrlich and Posner, 1974)

– Incomplete law (Pistor and Xu, 2003)

– Complexity of law (White, 1992)

– Efficiency of the common law (Posner, 2003,

Rubin, 1977, Priest, 1977, Goodman, 1978)

– Law and finance (La Porta et al., 1998)

– Litigation (Bebchuck, 1984)

Our point

Uncertainty of law fosters litigation

Parties litigate if their expectations over the

outcome of the adjudication diverge.

Uncertainty increases the chances that this

happens

Our point

Litigation reduces uncertainty

Judicial adjudication creates precedents and

hence fills the gaps in the law and reduces

future litigation on the same issue

Litigation sustains a certain degree of

certainty, which otherwise decays over time

A dynamic hypothesis

L

U

L*

U*

I

II III

IV

A “demand-supply” interaction

L = L (U, c)

U = U (L, s)

With LU > 0, UL < 0

The model

UU

LL

U (L, s)U (L, s)

L (U, c)L (U, c)

L*

U*

Policies

Legislation

v.

Litigation-cost policy

Lc< 0, Us < 0

Policies

Legislation = centralized supply of certainty

Judicial process = decentralized way of

producing legal rules

Private “supply” and “demand” for

certainty

UU

LL

U (L, s)U (L, s)

L (U, c)L (U, c)

L*

U*

Effect of policies: c↓↓↓↓

UU

LL

U (L, s)U (L, s)

L (U, c)L (U, c)

L*

U*

Effect of policies: s↑↑↑↑

UU

LL

U (L, s)U (L, s)

L (U, c)L (U, c)

L*

U*

Social optimum

minc,s[C(L(c,s))+D(U(c,s))+s]

Relevance

�Assess effects of state intervention on litigation

(tort) reforms and legislation

� Compare civil law and common law countries

� Redefine the role of institutions in the

production of law

� Determine the costs of lawmaking

Conclusions

Looking at the legal system as an uncertain set of

rules in constant evolution

NEXT: effects of other institutions on the

dynamics of uncertainty and litigation

NEXT: dynamic analysis

Fiat LexThe Evolution of Lawmaking

Giuseppe Dari-MattiacciAmsterdam Center for Law and Economics

Fiat Lex

Who makes and the law

and how

Fiat Lex – Giuseppe Dari-Mattiacci

Existing literature

(1) Better Common

or Civil Law?


Existing literature

– Efficiency of the Common Law Hypothesis

– Law and Finance

– Comparative Law and Economics


Existing literature

– Efficiency rationale for common law

– Econometric evidence


Existing literature

(2) Why Common

vs. Civil Law?


Existing literature

– Legal Origins


Problem

– These approaches lack micro-foundations


Why Rome

– Long legal tradition

– Had both “common” and “civil” law

– Well documented


What will we learn

– Why change system

– What is the effect on legal system and economy


Hypotheses

– The group in power chooses the system it can control better

– Lawmakers are accountable to a group, whose interest they serve


Hypotheses

– The efficiency of the system can be evaluated as fitness to serve those interests

– The evolution of the system depends on social and economic changes


Uncertainty of Law and the Legal Process · Uncertainty of Law and the Legal Process Giuseppe...

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