Endogenous Legal Traditions and Economic Outcomes

Abstract:     
The law and the economy are deeply influenced by the set of institutions used to aggregate citizens' preferences over the harshness of punishment --- i.e., the legal tradition. While under common law appellate judges' biases offset one another at the cost of volatility of the law, under civil law the legislator chooses certain legal rules that are biased only when she favors special interests: i.e., when preferences are sufficiently heterogeneous and/or the political process sufficiently inefficient. Hence common law can produce better economic performances only in the latter scenario. Instrumental variables estimates based on data from 49 transplants confirm this prediction.

Number of Pages in PDF File: 38

Keywords: legal origins, culture, democracy, regulation, economic development

JEL Classification: K40, Z1, H11, O10, L5, P16

working papers series