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1

Legal origin

is highly persistent systems or style of social control on economic life.

2

What about authors argue

Authors argue that common law stands for the strategy of social control that seeks to support private market outcomes, whereas civil law seeks to replace such outcomes with state-desired allocations.

3

Common Law (countries)

English colonies and English speaking countries: United States, Australia, Canada.

4

Common Law

• Role of judges: large (independent judges with longer tenure);
• Jurisprudence matters (appellant judges establish precedents);
• Judging based on cases; can make decisions that later will be taken as precedent. Law interpretations.
• Stands for social control that seeks to support private markets outcomes;
• Dispute resolving.

5

Civil Law (three parts)

French law (original Civil law), German law (accomodates greater judicial law making) and Scandinavian Law

6

Civil Law

• Role of judges: small (statutes and comprehensive codes based on Roman Law);
• Seeks state desired allocations;
• Policy implementing.

7

Differences between Civil Law and Common Law in capital markets

• Civil law
 Lower capital market development
Lower # of firms per capita
Higher ownership concentration
Lower private credit to GDP
• Common law
- Improved financial development
- Better access to finance
- Higher ownership dispersion

8

LEGAL ORIGINS THEORY

1. Historically England and continental Europe have different styles of social control of economic life;
2. These laws were involuntary transplanted via colonization to the rest of the world;
3. Although many legal and regulatory changes happened; these styles persist till now.

9

Conclusion

Legal rules & regulations differ across countries and these differences can be measured; diff in rules & reg are accounted by legal origins; the measured difference matters for economic and social outcomes. The authors don’t know which regulation will be in the future (if they don’t converge). But they think that common law approach to social control over economic life is better (when markets work well it is better to support them). But if bad times => civil law is better.

10

Differences between Civil Law and Common Law in the government

COMMON LAW
 Less corruption
 Better functioning labor markets
 Smaller gray economies
CIVIL LAW
 Corruption
 Unofficial employment
 Lower labor participation rate

11

Differences between Civil Law and Common Law in the Judicial system

COMMON LAW
 Secure property rights
 Better contract enforcement
CIVIL LAW
 Lower security of property rights
 Weaker contract enforcement