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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 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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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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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