Choice of Law: An Empirical Analysis

Journal of Empirical Legal Studies, Volume 11, Issue 4, 894–928, December 2014

35 Pages Posted: 15 Sep 2013 Last revised: 24 Dec 2014

Multiple version iconThere are 2 versions of this paper

Date Written: December 2, 2014

Abstract

I propose a new measure to study the law and economics of choice of law: “relative use of law.” Relative use of law measures the extent to which a state’s laws are disproportionally over- or underutilized in contract. It is constructed by normalizing the distribution of choice of law clauses by the extent of contracting activity within each jurisdiction. Using this measure, I study choice of law by analyzing the nearly 1,000,000 contracts that have been disclosed to the Securities and Exchange Commission between 1996-2012. These are all contracts that companies registered with the SEC deemed “material.” I find that (1) only Delaware and New York are relatively overutilized and (2) firms’ choice of law and relative use of law are converging toward Delaware, New York, and Nevada. I offer hypotheses for this convergence that are based on (1) lock-in effects of the choice of state of incorporation and (2) positive network effects of using the same law. I present suggestive evidence that lock-in effects explain convergence toward Delaware and Nevada, while network effects explain convergence toward New York.

Keywords: Choice of law, contract, transactional law

JEL Classification: K12, K22

Suggested Citation

Sanga, Sarath, Choice of Law: An Empirical Analysis (December 2, 2014). Journal of Empirical Legal Studies, Volume 11, Issue 4, 894–928, December 2014, Available at SSRN: https://ssrn.com/abstract=2325706 or http://dx.doi.org/10.2139/ssrn.2325706

Sarath Sanga (Contact Author)

Northwestern University - Pritzker School of Law ( email )

375 E. Chicago Ave
Chicago, IL 60611
United States

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