judicial rulemaking in western law
DESCRIPTION
Judicial Rulemaking in Western Law. Benito ARRUÑADA (UPF) Veneta ANDONOVA (ITAM). Motivation. Previous work on property rights ( JLEO ’03): Courts end up conditioning market transition Pro-market intent & nature of civil law reform in 1800s—(e.g., mortgage market) - PowerPoint PPT PresentationTRANSCRIPT
Judicial Rulemaking in Western Law
Benito ARRUÑADA (UPF)
Veneta ANDONOVA (ITAM)
Motivation
▪ Previous work on property rights (JLEO’03): ♦ Courts end up conditioning market transition♦ Pro-market intent & nature of civil law reform
in 1800s—(e.g., mortgage market) ♦ Common / civil law divide nonexistent
▪ Reinvigorated efficiency claims of common law (La Porta, Shleifer et al.)
▪ GOAL: Explore an adaptation hypothesis for explaining modern Western law
Analytical framework
▪ A key design difference b/w common & civil law: allocation of rule making power to judges:♦ Rule making power of the whole judiciary♦ ‘Centralization’ of this power—binding precedent
▪ Four areas of trade-offs:♦ Self-interest (1)♦ Information (2)♦ Cognitive: Rationality (allegedly decisive)
• Bias and heuristics (3)
• Unnaturalness of markets (4)
Drivers of rulemaking inefficiency (1): Self-interest
▪ Parties♦ Legislators retain rulemaking supremacy♦ Judges do not need rules to be corrupt♦ Rent-seeking by parties to contracts require
biased rule-maker
▪ Depends on fields of law (?)♦ In private law, less legislative rent seeking♦ Choice of field temporary and endogenous
Drivers of rulemaking inefficiency (2): Lack of information
▪ Geographic scope of markets advantage for centralized standards (?)♦ But, in any case, binding precedent enough
(especially if centralized)
▪ Speed of technical change need faster adjustment♦ But unclear which system adapts faster
Drivers of rulemaking inefficiency (3): Rationality—Biases & heuristics
▪ Guthrie, Rachlinski & Wistrich (2001), judges fail♦ The same in Hindsight, Anchoring & Egocentrism advises
constraining judicial ruling—e.g., liability standards♦ Less in Framing & Representativeness
▪ Doubt how judges process key experimental info♦ Is a defendants’ move for dismissal irrelevant when testing for
anchoring effects?
▪ Hindsight: applicable, more than to negligence, to:♦ Emphasis on balanced compensation ex post ♦ Prejudice against asymmetric contracting
▪ But affects equally judges from all jurisdictions
Drivers of rulemaking inefficiency (4): Rationality—Unnaturalness of markets
▪ Sharing redistributive rulemaking
▪ Identifiable persons tendency to ignore rule-setting effects of individual sentences (justice vs. efficiency)
▪ Greater bias against abstract transactions (capital, intangibles, perhaps trade)
‘Cognitive gap’ between continental legislators and judges in 19th century
▪ Legislators♦ Aristocratic democracy made ‘political leadership’
possible instead of ‘political agency’ (20th) more ‘rational’ (pro-market) elites
♦ Also had market experience & profit opportunities?
▪ Judiciary♦ Continent: judicial nobility, more Canon law♦ England: former barristers
Hypothesis: Western law as pro-market adaptation
▪ Common law evolved within a slow transition to the market economy
▪ Civil law changed from above, as part of a pro-market liberal revolution, by constraining judges rulemaking powers
▪ Historical ‘test:’ ♦ 19th and ♦ 20th centuries
Test: Western law in the 19th century
▪ Few changes in common law♦ Needed Roman law introduced w/o codification♦ Binding precedent—national markets
▪ Pro-market revolution of the civil law♦ Freedom of contract achieved by combining:
• Codification Default rules
• Minimal judicial discretion: Sentence according to law & bound by centralized precedents
• Also: Codification doctrinal changes diluting Canon law influence: credit, penal clauses, ‘lesion’, ‘cause’
♦ Mandatory law to reduce transaction costs—e.g., land titling
Test: Anti-market trends in Western law
▪ Changes: statue law in ‘new’ fields and:♦ Common law: courts interfere with contractual
freedom—e.g., unconscionability (= Canon Law)♦ Civil law: greater judicial discretion
▪ Cognitive hypotheses♦ Increased uncertainty in 1910-30s ‘sharing’
• Why not before?
♦ Political change: Elites as political ‘agents’ instead of leaders• Exogenous?
Alternative perspectives
▪ The efficiency debate is not a comparative exercise analyses internal consistency, not efficiency
▪ Comparative performance—La Porta et al.♦ Self-selection♦ Measurement nightmare♦ Correlation ≠ Causation
▪ Need to ♦ Consider self-selection♦ Use institutional dimensions as independent variables (e.g.,
judicial discretion) instead of labels (civil & common law)
Concluding remarks (1)
▪ How to create market friendly institutions—the rule of law—in transition & developing economies♦ Adaptation♦ Constrain judges—but does a cognitive gap exist?
• Lack of market-wise judges
• But political elites more often agents (South America) than leaders (Asian tigers)
♦ Self-enforcing institutions• Example: community mortgage systems
Concluding remarks (& 2)
▪ How to preserve market friendly institutions in developed economies♦ A doses of redistribution required b/c of the
cognitive anti-market bias?