Law and the Judge’s Cousin
But substantive law is an intrinsic part of the institutional structure. If the quality of institutions matter, then by definition the quality of laws matter. That is a point made over and over again by Coase, North, Williamson and other economists.
Yes and no. I don’t deny that law plays a role in the quality of the institutions that resolve disputes. I also don’t deny that the overall quality of dispute resolving institutions is effected by the substantive law that the institutions apply. On the other hand, legal institutions are the result of much more than either the legal rules that define their workings or the legal rules that they apply. They are also the result of things like allocation of resources and informal social practices.
I was once at a panel that brought this point home forcefully. It was on comparativecommercial law and that perennial chestnut, which is better the common law or the civil law. The partisans of the common law were laboring hard to establish the virtues of its flexibility and respect for freedom of contract. (I’ve labored over these virtues myself on occasion.) At this point, a long-time commercial practitioner on the panel interjected remarks to this effect:
At the margins, I suppose that the common law is slightly more friendly to commercial innovation than is the civil law. When I go to a civil law jurisdiction I often learn that there are certain transactions I simply can’t run or are more complicated to structure. On the other hand, when I am assessing the economic prospects in any particular country, my main question isn’t “Is this a civil law or a common law jurisdiction?” Rather, my main question is whether or not the fact that the lawyer on the other said is the judge’s cousin will effect the outcome of the case.
That is what I mean when I say that institutions matter more than substantive law.