The Evolution of a Legal Rule

Working Paper No. 13856 The efficiency of common law rules is central to achieving efficient resource allocation in a market economy. While many theories suggest reasons why judge-made law should tend toward efficient rules, the question whether the common law actually does converge in commercial ar...

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Bibliographic Details
Published in:NBER Working Paper Series 2008-03, p.13856
Main Authors: Niblett, Anthony, Posner, Richard, Shleifer, Andrei
Format: Article
Language:English
Subjects:
Common law
Construction industry
Contract negotiations
Decision making
Economic theory
Efficiency
Market economies
Property damage
Torts
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Summary:Working Paper No. 13856 The efficiency of common law rules is central to achieving efficient resource allocation in a market economy. While many theories suggest reasons why judge-made law should tend toward efficient rules, the question whether the common law actually does converge in commercial areas has remained empirically untested. We create a dataset of 465 state-court appellate decisions involving the application of the Economic Loss Rule in construction disputes and track the evolution of law in this area from 1970 to 2005. We find that over this period the law did not converge to any stable resting point and evolved differently in different states. We find that legal evolution is influenced by plaintiffs' claims, the relative economic power of the parties, and nonbinding federal precedent.
ISSN:0898-2937
DOI:10.3386/w13856