Edited by Peer Zumbansen and Gralf-Peter Calliess
Chapter 8: Forces Shaping the Evolution of Private Legal Systems
Amitai Aviram* INTRODUCTION 1. In a world with no transaction costs, perfect rationality, and complete information, not much could be gleaned from studying the evolution of private legal systems (PLSs),1 nor could one predict with any accuracy the future evolution of PLSs. In this economic fantasy land, efficient norms are already known and recognized by all, and the PLSs’ norm enforcement costs (which are a component of the total transaction costs) are zero. Thus, any institution – public or private – is likely to become a successful norm enforcer. I thank Ben Christenson and Lauren Ferrante for their diligent research assistance. For the purposes of this chapter, I define a PLS as a multi-party institution that enforces norms through the use of network effects. This distinguishes PLSs from other norm-enforcing institutions, notably government regulation (which uses hierarchy and government’s monopoly of force), and bilateral contracts (which rely on either government enforcement, repeated play or the exchange of collateral, but not on network effects). I prefer this definition to an alternative one that focuses on the non-government (i.e., private) character of the institution, because the dichotomy between public and private legal systems is not always a clear one. Some PLSs have a significant public backing and are very similar to public legal systems. For example, the King of England enacted in 1353 the ‘Statute of the Staple,’ which prohibited Common Law courts from hearing disputes arising from contracts made on the staple markets (markets for important commodities, such as wool). Instead,...
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