Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/26403
Authors: 
Anderlini, Luca
Felli, Leonardo
Riboni, Alessandro
Year of Publication: 
2008
Series/Report no.: 
CESifo working paper 2358
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.
Subjects: 
Statute law
case law
flexibility
rigidity
time-inconsistency
precedents
JEL: 
C79
D74
D89
K40
L14
Document Type: 
Working Paper

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