- Uncertainty of law and the legal process
- Journal of Institutional and Theoretical Economics
- Volume | Issue number
- 163 | 4
- Pages (from-to)
- Document type
- Interfacultary Research Institutes
Faculty of Law (FdR)
Faculty of Economics and Business (FEB)
- Amsterdam Center for Law & Economics (ACLE)
Amsterdam Business School Research Institute (ABS-RI)
There is extensive literature on whether courts or legislators produce efficient rules, but which of them produces rules efficiently? The law is subject to uncertainty ex ante; uncertainty makes the outcomes of trials difficult to predict and deters parties from settling disputes out of court. In contrast, the law is certain ex post: litigation fosters the creation of precedents that reduce uncertainty. We postulate that there is a natural balance between the degree of uncertainty of a legal system (kept under control by litigation) and its litigation rate (sustained by uncertainty). We describe such equilibrium rates in a model of tort litigation, study how they are affected by different policies, and compare the costs and benefits of the legislative and the judicial process of lawmaking.
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