The Timing of Lawmaking
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The Timing of Lawmaking

Edited by Frank Fagan and Saul Levmore

Legal reasoning, pronouncements of judgment, the design and implementation of statutes, and even constitution-making and discourse all depend on timing. This compelling study examines the diverse interactions between law and time, and provides important perspectives on how law's architecture can be understood through time. The book revisits older work on legal transitions and breaks new ground on timing rules, especially with respect to how judges, legislators and regulators use time as a tool when devising new rules. At its core, The Timing of Lawmaking goes directly to the heart of the most basic of legal debates: when should we respect the past, and when should we make a clean break for the future?
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Chapter 12: Renovating the efficiency of common law hypothesis

Frank Fagan

Abstract

The efficiency of common law hypothesis provides a set of first principles for lawyer-economists who examine the evolution of legal rules over time. Recent work, however, observes a trend toward redistribution, especially in tort. This chapter attempts to reconcile the conflicting accounts by introducing externalities in individual activity to the original litigation model. As externalities increase, organizing costs among potential parties increase. If the sum of organizing costs and remaining transacting costs is not prohibitive, then all of those allocatively affected reach an agreement. I call this a pan-efficient equilibrium. However, if the sum of costs is prohibitive, litigation may ensue. Parties litigate pan-inefficient rules when their expectations of victory differ. For this reason, plaintiffs may forgo immediate litigation in favor of waiting for organizing costs to recede and for the probability of victory to increase. Once party expectations of victory differ, they litigate, and courts discern the merits of pan-inefficient precedents. Over time, the tendency for pan-inefficient rules to arise more frequently in litigation will lead to their disproportionate overruling relative to pan-efficient precedents. This framework explains the apparent instability between redistribution and efficiency and provides an updated interpretation of the efficiency of common law. Keywords: efficiency of common law hypothesis, economic loss rule, tort misalignments

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