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Common law and civil law as pro-market adaptations
Arruñada, Benito; Andonova, Veneta
Universitat Pompeu Fabra. Departament d'Economia i Empresa
We argue that in the development of the Western legal system, cognitive departures are themain determinant of the optimal degree of judicial rule-making. Judicial discretion, seen here as the main distinguishing feature between both legal systems, is introduced in civil law jurisdictions to protect, rather than to limit, freedom of contract against potential judicial backlash. Such protection was unnecessary in common law countries, where free-market relations enjoyed safer judicial ground mainly due to their relatively gradual evolution, their reliance on practitioners as judges, and the earlier development of institutional checks and balances that supported private property rights. In our framework, differences in costs and benefits associated with self-interest and lack of information require a cognitive failure to be active.
Business Economics and Industrial Organization
Economic and Business History
legal systems
institutional development
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Working Paper

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