A Paradox of Spontaneous Formation: The Evolution of Private Legal Systems

81 Pages Posted: 7 Feb 2005

See all articles by Amitai Aviram

Amitai Aviram

University of Illinois College of Law

Abstract

Scholarship on private legal systems (PLS) explains the evolution of norms created and enforced by PLSs, but rarely addresses the evolution of institutions that form PLSs. Such institutions are assumed to form spontaneously (unless suppressed by law) when law is either unresponsive or incapable of directing behavior in welfare-maximizing manners.

But, as this paper demonstrates, PLSs typically cannot form spontaneously. Newly formed PLSs cannot enforce cooperation since the effectiveness of mechanisms used to secure this cooperation (e.g., the threat of exclusion) depends on the PLS's ability to confer benefits to its members, and newly formed PLSs do not yet confer such benefits.

Successful PLSs bypass this barrier by building on extant foundations - preexisting institutions that already benefit members, typically through functions requiring less costly enforcement. The threat of losing preexisting benefits disciplines members to abide by the PLSs' rules, which in turn allows the PLSs to regulate behavior. This pattern indicates that rather than developing spontaneously, PLSs develop in phases, initially facilitating activities that are unrelated to regulating behavior and incur lower enforcement costs, the provision of which enables the PLS to regulate behavior in the second stage. The paper suggests normative applications of this observation in the fields of antitrust, critical infrastructure protection and corporate governance.

JEL Classification: D23, K20, K42, L14

Suggested Citation

Aviram, Amitai, A Paradox of Spontaneous Formation: The Evolution of Private Legal Systems. Yale Law & Policy Review, Vol. 22, p. 1, 2004. Available at SSRN: https://ssrn.com/abstract=421500

Amitai Aviram (Contact Author)

University of Illinois College of Law ( email )

504 E. Pennsylvania Avenue
Champaign, IL 61820
United States

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