The Law and Economics of Federalism
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The Law and Economics of Federalism

Edited by Jonathan Klick

This unique volume takes a primarily empirical perspective on the law and economics of federalism. Using cross jurisdiction variation, the specially commissioned chapters examine the effects of various state experiments in areas such as crime, welfare, consumer protection, and a host of other areas. Although legal scholars have talked about states as laboratories for decades, rarely has the law and economics literature treated the topic of federalism empirically in such a systematic and useful way.
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Chapter 7: Entrepreneurial creative destruction and legal federalism

John A. Dove and Russell S. Sobel

Abstract

Legal federalism is a system in which a government’s legal powers (judicial and legislative) are separated both vertically and horizontally with multiple levels of decentralized government. This type of system results in differences in legal rules and interpretations across sub-regions within the nation, in contrast to a more centralized legal system in which laws would be more uniform. In this chapter, we consider how the presence of horizontal legal variation across jurisdictions affects the level of innovation and entrepreneurship in an economy. In addition, we examine how the disruptive and unpredictable process of product innovation itself helps to push the evolution of law through time. Because entrepreneurs constantly create new products that require new interpretations of existing statutory law (or the creation of new statutory law), we argue that it is the predictability of the dynamic application of the law into new areas that matters most in attracting entrepreneurs to an area and supporting innovation within an economy.

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