Legal origin has been brought forward as a key influence on modern finance, because common law institutions protect investors better than do civil law institutions, it is claimed. These institutional differences are said, in the legal origin explanation, to have been hard-wired into nations centuries ago. Daniel Klerman and Paul Mahoney challenge the legal origin description of the jury as emerging and achieving prominence in 12th- and 13th-century England while remaining unimportant in France. That contrast has been offered as a key difference between common and civil law, one dependent on the differences in relative power between the English monarch and the French one in the 13th century. But the investigation of the jury here should give pause to those promoting the overall legal origin thesis. The first reason to hesitate is that the jury is not central to protecting outside investors in common law nations. Indeed America's premier corporate court --- the Delaware Chancery court --- sits without a jury, and the usual view in legal circles is that the jury's absence (and the resulting decision-making by expert judges, not juries) is a strength of the court, not a weakness. The second reason is that Britain did not generally transfer the jury system to its colonies, because to have done so would have conflicted with its colonial goals. That is not a secondary point: political economy issues regularly trump issues like legal origin --- colonial policy was just one example of how political goals displace secondary institutions. The third reason is that analysis for the jury differences between civil and common law nations depends on political economy differences centuries ago. But if political economy differences determined institutional differences in the earlier centuries, it is plausible that political economy differences in the intervening centuries would also have affected financial outcomes. Indeed modern political economy differences that lead some nations to support capital markets and others to denigrate them could explain modern financial differences as much as, or more than, 13th century political differences.
Tuesday, November 25, 2008
Roe on Juries, Political Economy and Legal Origin
Mark J. Roe, Harvard Law School, has posted the paper Juries and the Political Economy of Legal Origin. His abstract follows: