Edward L. Glaeser & Andrei Shleifer

Legal origins

Octavia FoartaOctober 2007

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Introduction

Protection of property rights is generally regarded as the state’s main role in the economy

This requires a functional legal system, that protects law enforcers from being bullied through either violence or bribes

In many countries, the legal system has been heavily influenced by either English common law or French civil law

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The English Common Law

Originated in England in the twelfth and thirteen century (Henry II)

Trials by an independent jury Broad legal principle and

standards Relies of oral argument and

evidence Trials play an important role Appeal is less frequent

The French

Civil Law

Has its roots in the Roman law and developed between the eleventh and thirteenth century (Philip Augustus and Louis IX)

State-controlled judges Clear bright-line rules Relies of written evidence Trials don’t play such an

important role Appeals are frequent

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The Facts

In a sample of 109 countries, 42 countries in the English common law tradition and 40 countries in the French civil law tradition (Djankov et al. 2002)

At the same level of development, French civil law countries have higher regulation, less secure property rights, more corrupt governments and less developed financial markets than common law countries (La Porta et al. 1997, 1998, 1999)

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The Questions

Why did such different legal systems evolve in France and in England?

Why are these differences in the organization of legal systems associated with such different social and economic outcomes?

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The Hypothesis

The effects of coercion and corruption must be limited for a legal system to work properly

When bullying is moderate, it is more efficient to have independent local decision makers (juries)

When bullying is extreme, it is better to leave adjudication to state-employed judges who are less vulnerable to local pressure

France royal justice more efficient England efficient to resolve disputes locally

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The Model

Royal Judge

– Less vulnerable to bullying– Incentivized by the king– Reflects the preferences of the

king

Local Jury

– Vulnerable to local pressures– Faces no incentives– Preference are closer to the

community’s

Trade-off between:

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The Setup

D = severity of the violation (want to punish if D>0) R = how much the king wants to punish (+ or -) Ө= the degree to which the kings preferences don’t match those of the

community (ө>0) R and D indep. distributed with cdf’s F(D) and G(R); E(D)>0, E(R)=0

Ucommunity=D Uking=D+өR

Social Utility from each conviction: U=D+λөR

Total Social Welfare:

dDdRRgDfRD )()()(

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The Jury Case

Ujury=βD-A A= pressure put on by the magnate β=how much the jury cares about doing justice So, the jury convicts if βD>A

Social welfare with jury:

/)(

ADdDDDf

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The Social Losses from Jury

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The Royal Judge Case

Ujudge=βj(D+θjR)-A

With incentives from the king: Ujudge=βj(D+θR) Convict when R>-D/θ So, for any D, 1-G(-D/θ) of cases reach conviction For λ=0, social welfare is:

D

dDDfDGD )())/(1(

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The social losses from judge

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Efficient choice of legal system

France → local nobles were able to subvert justice → civil law system

England → local nobles less able to subvert justice→ common law system

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Adoption of bright line rules

Codification was adopted to allow kings to control the judges We modify the previous model:

– Codification: convict if – R and D are no longer observed– The king only knows: 1) was and 2) did the judge convict

Suppose the kings institutes incremental payments for conviction Pv (for cases when ) and Pnv (for when ).

Judge convicts when βj(D+θjR)+Pi>A, i=v, nv

DD

DD

DD DD

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Bright line rules (II)

So king chooses Pv to maximize his utility:

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Convergence

Consider the degree of overlap between BLR and common law

The 2 regimes lead to different decisions when

for

In developed countries, A is lower and is closer to 0. This leads to convergence between civil and common law.

The situation is different in developing countries, where “bad” governments can use the civil law for their leaders’ goals, thus less secure property rights, heavier intervention, corruption etc.

DDA / DA 0/

D

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Conclusion

Efficient solutions for protecting property rights may lead to very different answers in different environments

The civil and common law lead to different procedural and social outcomes

Civil law is especially vulnerable to abuse by “bad” government

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