49 Pages Posted: 15 Sep 2005
Date Written: July 2005
The Uniform Sales Act was a precursor to Article 2 of the Uniform Commercial Code. Between 1906 and 1947 it was adopted in 34 states. Transaction cost theory suggests that states' adoption decisions should have been influenced by "contagion effects" - the adoption decisions of their neighbors. Indeed, contagion effects could have induced adoption of the Act even if it was widely perceived to be less efficient than the common law that it replaced. This paper uses hazard analysis to test various hypotheses about the factors that influenced states' adoption decisions. The results indicate that contagion effects were among the most important factors in the diffusion of the Act. Manufacturing interests also played an important role, especially in a small number of states that adopted the Act early. Subsequent to these early adoptions, the Act gradually diffused across most of the country, except the south. Its diffusion was driven primarily by contagion effects and manufacturing interests, although the legal profession may also have played an important role. It appears that the Act ultimately failed to achieve complete uniformity largely because the contagion effects that drove its adoption in most of the country were not present in the south. In the final analysis, the results offer little reason to believe the Act was widely perceived to be any more efficient than the common law that it replaced.
Keywords: Uniform Sales Act, institutional innovation, contagion effects, hazard analysis
JEL Classification: K12, K20, N40
Suggested Citation: Suggested Citation
Smythe, Donald J., Transaction Costs, Contagion Effects, and the Diffusion of the Uniform Sales Act, 1906-47 (July 2005). Available at SSRN: https://ssrn.com/abstract=799324 or http://dx.doi.org/10.2139/ssrn.799324