This famous passage from Marshall’s Principles of Economics (it first appeared in the fifth edition which came out in 1907) nicely brings out two issues, which are as germane to economics today as they were when Marshall wrote. The first is the heavy reliance by economists in their formal theorizing on the notion of “equilibrium”. The other is the appeal that “biological conceptions3x201D; have for many economists, particularly when their focus is on economic change.

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Recent Evolutionary Theorizing About Economic Change

http://faculty.haas.berkeley.edu/ross_levine/Papers/2003_JCE_Legal%20Origin.pdf

Law and Finance: Why Does Legal Origin Matter?

A growing body of work suggests that cross-country differences in legal origin help explain differences in financial development. The authors assess two theories of why legal origin influences financial development. First, the"political"channel stresses that (1) legal traditions differ in the priority they give to the rights of individual investors compared with the state, and that (2) this has repercussions for the development of property rights and financial markets. Second, the"adaptability"channel holds that (1) legal traditions differ in their ability to adjust to changing commercial circumstances, and (2) legal systems that adapt quickly to minimize the gap between the contracting needs of the economy and the legal system's capabilities will foster financial development more effectively than would more rigid legal traditions. The authors use historical comparisons and cross-country regressions to assess the validity of these two channels.

Law and finance: why does legal origin matter?

A burgeoning literature finds that financial development exerts a first-order impact on long-run economic growth, which raises critical questions, such as why do some countries have well-developed growth-enhancing financial systems while others do not? The law and finance theory focuses on the role of legal institutions in explaining international differences in financial development. First, the law and finance theory holds that in countries where legal systems enforce private property rights, support private contractual arrangements, and protect the legal rights of investors, savers are more willing to finance firms and financial markets flourish. Second, the different legal traditions that emerged in Europe over previous centuries and were spread internationally through conquest, colonization, and imitation help explain cross-country differences in investor protection, the contracting environment, and financial development today. But there are countervailing theories and evidence that challenge both parts of the law and finance theory. Many argue that there is more variation within than across legal origin families. Others question the central role of legal tradition and point to politics, religious orientation, or geography as the dominating factor driving financial development. Finally, some researchers question the central role of legal institutions and argue that other factors, such as a competitive products market, social capital, and informal rules are also important for financial development. Beck and Levine describe the law and finance theory, along with skeptical and competing views, and review empirical evidence on both parts of the law and finance view.

/pdf/legal-institutions-and-financial-development-8otgm9u9rh.pdf

Legal Institutions and Financial Development

DETAILED CONTENTS ix LIST OF ILLUSTRATIONS xv LIST OF TABLES xvii PREFACE AND ACKNOWLEDGMENTS xix CHAPTER 1. Taking Consequences Seriously: Introduction 1 PART I: PROCESSES OF GOVERNMENT: VOTING, BARGAINING, ADMINISTERING 15 CHAPTER 2. Voting 17 CHAPTER 3. Bargaimng 51 CHAPTER 4. Administering 79 PART II: THE OPTIMAL NUMBER OF GOVERNMENTS 101 CHAPTER 5. Intergovernmental Relations CHAPTER 6. Government Competition 127 CHAPTER 7. Ministries and Agencies PART III: OPTIMAL DIVISION OF POWERS CHAPTER 8. Specialization 173 CHAPTER 9. Separation of Powers 211 PART IV: OPTIMAL RIGHTS 241 CHAPTER 10. The Value of Rights 243 CHAPTER 11. Philosophies of Rights: Liberty and Redistribution 261 CHAPTER 12. Property Rights 279 CHAPTER 13. Free Speech 309 CHAPTER 14. Civil Rights 333 CHAPTER 15. Summary and Conclusion 359 BIBLIOGRAPHY 381 GENERAL INDEX 399 INDEX OF NAMES 409

The Strategic Constitution

Contrary to established, frequently repeated proposition that its budget surplus cannot be distributed to taxpayers without disturbing the incentive compatibility of the demand revealing process (DRP), the surplus can be distributed by reapplying the key concept of the DRP. There will remain an aggregate refund error that in a Bayesian sense is random with zero mean, and which vanishes O(1/N)2 as the economy becomes large through replication. To dela with income effects. when one does not restrict the domain of the mechanism to separable utility functions, I suggest a variation of the DRP that preserves its incentive compatibility wgeb N is finite.

The demand revealing process: To distribute the surplus

A Positive Theory of Legal Change

THERE are two broad theories of the effect of litigation on legal change. One is that judges are responsible for legal change.' In this view, the law tracks the preferences (conscious or unconscious) of judges. The alternative view is that litigants drive the law; this is the import of the evolutionary models of legal change.2 In this article we propose a variant of the second view: the law is driven by the preferences of attorneys, not of litigants or of judges (although both parties have a place in our story). This view contrasts with the William Landes and Richard Posner3 hypothesis that the law tracks economic efficiency. Our basic argument is that the law will come to favor the more concentrated class of parties with an interest in the law.4 We modify this theory to allow for the interests of lawyers. We show that the same litigation process that leads the law to favor concentrated parties will also lead at least some branches of law to favor attorneys.5 We apply our theory to modern product liability law. We show that

The Role of Lawyers in Changing the Law

Note on Ricardian equivalence

Several authors have proposed mechanisms whose Nash-equilibria yield Lindahl tax allocations; however, as is well known, so does the Lindahl procedure with an auctioneer. Moreover, the game forms of all these mechanisms, and of any as yet undiscovered such mechanism, all have the same normal form as does the Lindahl procedure without an auctioneer. The manipulative Nash equilibria are consequently the same for all these mechanisms, so that all have the traditional free-rider problem and all have the same outcome under strategic behavior.

Martin J. Bailey

Papers

The demand revealing process: To distribute the surplus

A Positive Theory of Legal Change

The Role of Lawyers in Changing the Law

Note on Ricardian equivalence

Lindahl mechanisms and free riders