Legal Infrastructure and the New Economy

I/S: A Journal of Law and Policy for the Information Society, Vol. 8, No. 1, 2012

USC CLEO Research Paper No. C10-7

USC Law Legal Studies Paper No. 10-8

59 Pages Posted: 11 Mar 2010 Last revised: 23 Dec 2013

See all articles by Gillian K. Hadfield

Gillian K. Hadfield

University of Toronto; Vector Institute for Artificial Intelligence; OpenAI; Center for Human-Compatible AI

Date Written: February 24, 2012


In the last two decades, the economy has undergone fundamental transformation with the twin structural changes of a great increase in the size of global markets and the internet-driven development of a platform for global exchange and work processes. These changes have transformed the economic demand for law: the demand for legal inputs that will support the creation of value in economic relationships. Not merely the quantity but the type of legal inputs required by the new economy is significantly different from those required by the old economy. The economic demand for law in the new economy requires support for the much higher rates at which economic relationships now cross both firm and jurisdictional boundaries, the more rapid depreciation of legal solutions, the increased differentiation of legal problems, the reduced tolerance for legal transaction costs created by high velocity and global competition, and a greater need for integration of business and legal expertise in order to engage in the relatively constant innovative problem-solving that the new economy requires. In this paper I argue that our legal infrastructure - the socially available set of legal materials that economic actors can use to help govern relationships - has not kept up with this transformation in the economic demand for law. Empirical evidence for this claim includes the increasing levels of dissatisfaction in even the most elite corporate legal markets, the unprecedented impact of the Great Recession of 2009 on large law firms, and surveys and interviews conducted with corporate counsel. The primary basis for the claim of a mismatch, however, is theoretical: the attributes of our existing legal infrastructure - a heavy reliance on densely-worded and complex statutes, regulations and contracts; human-capital-intensive craft production methods; undiversified legal business models; almost exclusive reliance on mandatory legal rules imposed by public actors - are poorly suited to the nature of economic activity in the new economy. The reason our legal infrastructure has not adapted, I argue, is attributable to an even deeper level of legal infrastructure: the severe limitations on who may produce legal rules and other legal inputs (such as advice, document templates, norms and practices) imposed by our continued reliance on publicly produced rules and the excessively closed nature of our lawyer- and judge-controlled legal markets.

Keywords: legal design, rule of law, globalization, internet, legal evolution, legal infrastructure

JEL Classification: K00, L43, L44, L52, L86, M13, O31, O38, O34

Suggested Citation

Hadfield, Gillian K., Legal Infrastructure and the New Economy (February 24, 2012). I/S: A Journal of Law and Policy for the Information Society, Vol. 8, No. 1, 2012, USC CLEO Research Paper No. C10-7, USC Law Legal Studies Paper No. 10-8, Available at SSRN:

Gillian K. Hadfield (Contact Author)

University of Toronto ( email )

78 Queen's Park
Toronto, Ontario M5S 2C5
4169784214 (Phone)

Vector Institute for Artificial Intelligence ( email )

OpenAI ( email )

Center for Human-Compatible AI ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

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