This paper extends the author's previous results on the same theme. As the economy grows in complexity, the constraints of information and motivation tighten on centralized lawmaking. Specialized business communities develop their own norms, which the paper terms the "new law merchant." Decentralized lawmaking involves enacting into law those community norms that pass a structural test of efficiency and fairness. The structural test is obtained from a theory of games and norms. Norms arise in a community from games in which individuals have incentives to signal support for practices increasing the supply of local public goods. The standards prescribed by these norms are efficient in the absence of spill-overs or nonconvexities, but the level of informal enforcement is inefficient. The evolution of the common law towards efficiency comes from enforcing efficient social norms, not from selective litigation pressure.Please contact the Program in Law and Economics at Boalt Hall School of Law, UC Berkeley, Berkeley, CA 94720 for a copy of this paper.
No takes yet. Share an insight, caveat, or question.
Robert D. Cooter (1996) studied this question.