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Statute Law or Case Law?

49 Pages Posted: 22 Jul 2008 Last revised: 22 Sep 2008

Luca Anderlini

Georgetown University - Department of Economics

Leonardo Felli

London School of Economics - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Alessandro Riboni

Ecole Polytechnique, Paris - Laboratoire d'Econometrie

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Date Written: July 1, 2008

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 Case Law regime over the Statute 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.

Suggested Citation

Anderlini, Luca and Felli, Leonardo and Riboni, Alessandro, Statute Law or Case Law? (July 1, 2008). Available at SSRN: https://ssrn.com/abstract=1168662 or http://dx.doi.org/10.2139/ssrn.1168662

Luca Anderlini

Georgetown University - Department of Economics ( email )

Washington, DC 20057
United States
202-687-6361 (Phone)
202-687-6102 (Fax)

HOME PAGE: http://www.georgetown.edu/faculty/la2/

Leonardo Felli (Contact Author)

London School of Economics - Department of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 20 7955 7525 (Phone)
+44 20 7831 1840 (Fax)

HOME PAGE: http://econ.lse.ac.uk/staff/lfelli/index_own.html

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Alessandro Riboni

Ecole Polytechnique, Paris - Laboratoire d'Econometrie ( email )

1 rue Descartes
Paris, 75005
France

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