Uncertainty of Law and the Legal Process

Journal of Institutional and Theoretical Economics, Vol. 163, No. 4, pp. 627-656, December 2007

George Mason University Law & Economics Research Paper No. 05-39

Amsterdam Center for Law & Economics Working Paper No. 2005-10

44 Pages Posted: 14 Dec 2005 Last revised: 1 Apr 2011

Giuseppe Dari‐Mattiacci

Amsterdam Law School; Amsterdam Business School; Tinbergen Institute

Bruno Deffains

Université Paris 2 Panthéon Assas; Institut Universitaire de France

Abstract

There is extensive literature on whether courts or legislators produce efficient rules, but which of them produces rules efficiently? Is there an optimal mix of litigation and legislation? The law is inevitably subject to a certain degree of uncertainty ex ante; uncertainty makes the outcomes of trials difficult to predict and, hence, prevents parties from settling disputes out of court. Conversely, the law is necessarily certain ex post: litigation fosters the creation of precedents that reduce uncertainty. We postulate that there is a natural balance between the degree of uncertainty of a legal system (kept under control by litigation) and its litigation rate (sustained by uncertainty). We describe such equilibrium rates of litigation and uncertainty in a formal model, study how they are affected by two different policies - litigation fees/subsidies and legislation - and compare the costs and benefits of the legislative and the judicial process of lawmaking. We then extend the analysis to explore the implications of this approach.

Keywords: incompleteness of law, complexity of law, litigation, judge-made law, legislation

JEL Classification: K10, K40, K41

Suggested Citation

Dari‐Mattiacci, Giuseppe and Deffains, Bruno, Uncertainty of Law and the Legal Process. Journal of Institutional and Theoretical Economics, Vol. 163, No. 4, pp. 627-656, December 2007; George Mason University Law & Economics Research Paper No. 05-39; Amsterdam Center for Law & Economics Working Paper No. 2005-10. Available at SSRN: https://ssrn.com/abstract=869368

Amsterdam Business School ( email )

Roetersstraat 18
Amsterdam, 1018WB
Netherlands

Tinbergen Institute

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Bruno Deffains

Université Paris 2 Panthéon Assas ( email )

12 place du Pantheon
Paris cedex 05, 75005
France

Institut Universitaire de France ( email )

103, bld Saint-Michel
75005 Paris
France

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