Academic journal article Brigham Young University Law Review

Unpacking Adaptability

Academic journal article Brigham Young University Law Review

Unpacking Adaptability

Article excerpt

I. INTRODUCTION

Legal Origins Theory holds that "legal origins - broadly interpreted as highly persistent systems of social control of economic life - have significant consequences for the legal and regulatory framework of the society, as well as for economic outcomes."1 First proposed over a decade ago in a pair of papers by Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer, and Robert W. Vishny ("LLSV"),2 Legal Origins Theory quickly grabbed the attention of legal scholars, but the caricatured portrayal of common law and civil law systems in those early papers3 prompted scathing criticisms.4 Chastened but unbowed, LLSV and other economists continued to refine the theory.5 In a recent review of the substantial literature generated by Legal Origins Theory, three of the LLSV authors concluded, "Since their publication about a decade ago, the two LLSV articles have taken some bumps. . . . [BJumps notwithstanding, the basic contribution appears to us to still be standing, perhaps even taller than a decade ago."6

Despite this sanguine assessment of Legal Origins Theory, LLSV have not persuasively described the mechanisms through which legal origins facilitate economic development. The question asked by Paul Mahoney still bedevils Legal Origins Theory: "Why should legal origin affect economic growth?"7 In this paper, we explore one proposed mechanism: adaptability. The adaptability hypothesis suggests that "legal traditions differ in their ability to evolve with changing conditions . . . and legal traditions that adapt efficiently to minimize the gap between the contracting needs of the economy and the legal system's capabilities will foster financial development more effectively than more rigid systems."8

Economic development requires behavioral innovations, which stretch the fabric of law. Thus, adaptability is said to be an essential characteristic of a legal system that would facilitate economic development. As we discuss in some detail below, the chief methodological challenge confronting the empirical study of adaptability is that researchers cannot measure adaptability directly. Legal Origins Theory attempts to surmount this challenge, in the first instance, by using legal institutions as proxies for adaptability.9 One of the foundational assumptions of Legal Origins Theory is that courts engage in highly contextualized rulemaking that improves the quality of law over time.10 Legal Origins Theory then takes this assumption one step further, asserting that "judicial law making and adaptation play a greater role in common than in civil law."11 Thus, legal origin becomes a second-order proxy for adaptability. We contend that adaptability is undertheorized and that a more nuanced understanding of adaptability reveals the implausibility of legal origin as proxy for adaptability.

II. THE PURPORTED LINK BETWEEN ADAPTABILITY AND ECONOMIC SUCCESS

Legal Origins Theory begins with the following proposition: "The two central dangers that any society faces are disorder and dictatorship."12 Four institutions - private ordering, private litigation, regulation, and state ownership, ranked in order of increasing state power13 - control these two dangers. A "fundamental tradeofP' inheres in the choice of institutions: "[A] state that has more powers to control disorder also has more for dictatorial abuse."14 The efficient institutional arrangement for a particular society is the one that minimizes the social costs of controlling disorder and dictatorship.

Historically, legal systems either evolved to satisfy these competing demands15 or were imposed via transplantation.16 In either event, Legal Origins Theory holds that the resulting legal systems became important determinants of future economic development. As noted above, adaptability has come to play a crucial role in this story. According to Legal Origins Theory, adaptable legal systems produce superior substantive law that, in turn, leads to superior economic outcomes. …

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