Codification, access to justice and contractual innovation

We study the effect of codification of specific contracts on subversion of justice. Contracting on novel transactions face uncertain enforcement because of limited development of judicial expertise. This may allow stronger parties to distort enforcement by investing more in legal argumentation. As a consequence, only equal parties may choose to contract. If inequality is large, introducing standardized template contracts which limit admissible evidence reduces distortions in adjudication. This expands the scale of contracting, but reduce its scope as agents use templates rather than contingent contracts. This eliminates judicial learning and the accumulation of precedents which over time enables parties to write efficient contingent contracts. Standardization may thus arise when trade opportunities among more unequal parties expand, e.g. in international trade. We discuss how historical codifications of specific commercial contracts limited judicial discretion in adjudication, e.g by limiting penalties and remedy actions to increase predictability of enforcement. Standardization has been critical for negotiable contracts, whose liquidity depend on an unconditional transfer among investors independently of relative wealth.