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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?
Fiat Lex – Giuseppe Dari-Mattiacci
Existing literature
– Efficiency of the Common Law Hypothesis
– Law and Finance
– Comparative Law and Economics
Fiat Lex – Giuseppe Dari-Mattiacci
Existing literature
– Efficiency rationale for common law
– Econometric evidence
Fiat Lex – Giuseppe Dari-Mattiacci
Existing literature
(2) Why Common
vs. Civil Law?
Fiat Lex – Giuseppe Dari-Mattiacci
Existing literature
– Legal Origins
Fiat Lex – Giuseppe Dari-Mattiacci
Problem
– These approaches lack micro-foundations
Fiat Lex – Giuseppe Dari-Mattiacci
Why Rome
– Long legal tradition
– Had both “common” and “civil” law
– Well documented
Fiat Lex – Giuseppe Dari-Mattiacci
What will we learn
– Why change system
– What is the effect on legal system and economy
Fiat Lex – Giuseppe Dari-Mattiacci
Hypotheses
– The group in power chooses the system it can control better
– Lawmakers are accountable to a group, whose interest they serve
Fiat Lex – Giuseppe Dari-Mattiacci
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
Fiat Lex – Giuseppe Dari-Mattiacci