Transcript Dow Chemical’s Bid for PBB

Legal Foundations of Corporate
Governance and Market Regulation
R. La Porta, F. Lopez-de-Silanes, and A. Shleifer
December 2007
LLSV (1997-98)
and further Contributions
1) Legal rules of investor protection can be measured and coded across countries using
national commercial (primarily corporate and bankruptcy) laws.
• Coding showed some countries offer stronger investor protections than others.
2) Legal rules protecting investors vary systematically among legal traditions (LOs):
• Laws of common law countries are more protective of outside investors than the laws
of civil law, and particularly French civil law countries.
• Countries with more protective laws have more developed capital markets
3) Civil law shows a heavier hand of government ownership and regulation
• LO predicts government ownership of banks (LLS 2002), burden of entry regulations
(DLLS 2002), regulations of labor markets (BLLS 2004), incidence of military
conscription (MS 2005a,b), and government media ownership (Djankov et al. 2003c).
 These indicators are associated with adverse impacts on markets, such as
greater corruption, larger unofficial economy, and higher unemployment.
• Common law is associated with lower formalism of judicial procedures (DLLS 2003b)
and greater judicial independence (LLSP 2004) than civil law.
 These indicators are associated with better contract enforcement and greater
security of property rights.
Pervasive influence of LOs
and the Legal Origin Theory
•
Assuming this evidence is correct, it raises an enormous challenge of interpretation:
 What is the meaning of LO? How can it account for all these correlations?
•
Following comparative legal scholars, we adopt a broad conception of LO as a style of social
control of economic life:
•
•
•
“Civil law is “policy implementing”, common law is “dispute resolving” (Damaska 1986).
French civil law embraces “socially-conditioned private contracting,” in contrast to common law’s support
for “unconditioned private contracting” (Pistor 2006).
Zweigert/Kotz characterize legal families not only by the purely judicial institutions (i.e., legal
procedures, forms of legal change, patterns of judicial recruitment), but also by the broader
attitude, philosophy, or ideology:
“The style of a legal system may be marked by an ideology, that is, a religious or political conception of
how economic or social life should be organized” (p. 72).
•
Legal OriginsTheory adopts this broader conception:
• Legal families are expressions of fundamental approaches to solving social problems
• LOs reflect social attitudes and ideology that lead to large investments not only on legal
infrastructure, but also on human capital educating politicians, judges, lawyers, etc..
These investments are not irreversible, but are costly to reverse.
• This view explains why when faced with a problem, LOs address them in their own style.
Background on Legal Origins
 McNeill/McNeill (2003) show how information transmission shapes human societies:
 Information (i.e., technology, language, religion, sports, law and legal systems) is
transmitted through trade, conquest, colonization, missionary work, migration, etc..
 Some information are transplanted voluntarily, as when people adopt technologies
they need  difficult to study consequences since it may be endogenous.
 In other cases, transplantation is involuntary, as in forced religious conversion,
conquest, or colonization  easier to identify the consequences.
 Legal origins or traditions present a key example of such often involuntary transmission of
different bundles of information across human populations (Watson 1974).
 Transplantation covers specific laws and codes, individuals with mother-country
training and human capital, general approaches/ideologies of the legal system, and
elements of the organization of the judiciary.
 Of course, national laws evolved/adapted to local cultural, religious, and economic
conditions, so the legal and regulatory systems of no two countries are identical.
 But individualization was not complete, so basic transplanted elements have persisted
allowing classification into legal families (David/Brierley 1985, Reynolds/Flores 1989)
Legal Origins
= English
= French
= German
= Scandinavian
= Socialist
The distribution of Legal Origin
Legal Origin, Institutions, and Outcomes
Institution
Procedural Formalism
Outcomes
Time to evict nonpaying te
Time to collect a bounced
Judicial Independence
Property rights
Regulation of Entry
Corruption
Unofficial economy
Government Ownership
of the media
Legal Origin
Labor Laws
Participation Rates
Unemployment
Conscription
Company Law
Securities Law
Stock market developme
Firm valuation
Ownership structure
Control premium
Bankruptcy Law
Private credit
Government Ownership
of Banks
Interest rate spread
Table I: Financial Institutions and Capital Markets Development
(Bar Graph of Negative dummies of Legal Origins in Panel A)
(Under construction!!!)
Financial Institutions and Capital Markets Development:
Size and Breath of Stock Markets
Financial Institutions and Capital Markets Development:
Private Credit and Interest Rate Spreads
Table I: Financial Institutions and Capital Markets Development
(Bar Graph of Negative dummies of Legal Origins in Panel A)
(Under construction!!!)
Government Regulation
Corruption and Unofficial Economy
Government Regulation
and Labor Market Outcomes
Table III: Judicial Institutions
(Bar Graph of Negative dummies of Legal Origins in Panel A)
(Under construction!!!)
Judicial Institutions
Court Efficiency and Contract Enforcement
Summary of the evidence so far
•
The economic consequences of Legal Origins are pervasive
•
Compared to the French civil law, common law is associated with:
1) Better investor protection  which in turn is associated with improved
financial development, better access to finance, and higher ownership
dispersion,
2) Lighter government ownership and regulation  which are in turn
associated with less corruption, better functioning labor markets, and
smaller unofficial economies, and
3) Less formalized and more independent judicial systems  which are in
turn associated with more secure property rights and better contract
enforcement.
•
Most important aspect of the results is how pervasive is the influence of LOs.
Why do Legal Origins matter?
Why in such a Pervasive way?
•
In recent years, various scholars, including ourselves, have used the historical narrative to
provide a theoretical foundation for the empirical evidence.
 What are the historical and structural differences among the legal systems that have
such pervasive consequences for rules and economic outcomes?
How did Common and Civil law diverge?
1) Enlightenment (17th-19th c.):
• English Revolution: lawyers and judges on the winning side
 Judicial independence = Parliament’s desire to create extra check on absolutism.
• French Revolution: lawyers and judges were monarchists
 Napoleonic codes made them automata to will of legislators/executive (LLSV 1999)
2) Middle Ages (12th-13th c.):
• England: relatively peaceful & independent knights with a strong king
 Decentralized dispute resolution w/ knights testimony (juries) was efficient
•
France: less peaceful, powerful feudal lords, weak king
 Nobles with power to subvert decentralized justice, so centralized system
organized and protected by the sovereign was required (GS 2002)
Three Implications of the Historical Analysis
for the Economic Consequences of LOs
1. Common law’s built-in Judicial Independence, specially for cases of administrative acts
affecting individuals  more respectful of private property and contracts (LLPS 2004)
2. Common Law’s emphasis on Judicial Resolution of Private Disputes (vs. legislation)
as a solution to social problems  greater emphasis on private contracts & orderings,
less on government regulation.
 Its regulation aims to facilitate private contracting rather than to direct particular
outcomes.
 Pistor (2006): French LO embraces socially-conditioned private contracting.
 Damaska (1986): civil law is “policy-implementing;” common law is “dispute
resolving.”
3. Common Law’s Adaptability benefits:
 Greater respect for jurisprudence as a source of law suggests they will be more
adaptable to changing circumstances (Hayek 1960, Levine 2005).
 Through sequential decisions by appellate courts, it evolves for the better and toward
more efficient legal rules (Posner 1973, Rubin 1977, Priest 1977).
Legal Origins Theory:
Why so much Hysterisis?
•
How has the influence of LOs persisted over decades or centuries?
• What did the British boats bring so different from what the French or the Spaniards
brought?
• If all transplanted were attitudes toward social control, the effects would not be so
persistent.
•
So, what got transplanted were laws and attitudes that require investments to provide
the mechanisms to address social problems in a society.
 These attitudes have persisted due to the vast investments required in writing laws
and educating and training people in them.
•
The legal system provides a style, and it is that system (as defined by Zweigert/Kotz),
with its codes, distinctive institutions, modes of thought and even ideologies, that is very
slow to change.
 It is not irreversible, but it would require large investments to be destroyed.
Legal Origins Theory:
Why so much Hysterisis? (2)
•
When private orderings get into a crisis, the civil law approach is to repress it or replace it
with state mandates, while the common law is to shore up markets:
• Example: Response to the Great Depression and financial crises of the 20th c:
 Civil law countries: bank nationalization, and suppression of stock markets.
 US: introduction of securities and banking regulation, and deposit insurance.
•
Civil law tends to expand government control when a need arises:
• Example: Napoleon’s expansion of military conscription, made possible by the
existing presence of bureaucracy that could administer the draft (MS 2005b).
• State’s presence is less pervasive in common law, so it relies less on administrative
solutions, and more on “market-supporting” or “dispute-resolving” ones.
•
Civil law tends to expand public involvement in new spheres:
• Some historians argue that since LOs have differed for centuries, we should observe
equal differences in rules and regulations in the 19th c.  This is not true:
• Public intervention in markets changes over time and responds to social needs or
political imperatives, so laws and regulations will change as well, but in ways
consistent with national legal traditions:
• Labor laws and securities laws are 20th-c. laws responding to social needs. Yet,
they took different forms in countries from different legal traditions.
The Historical Narratives and
the Interpretation of evidence
1) Evidence on judicial independence is a direct confirmation of the historical account:
• Common law has less formalized contract enforcement, longer constitutional tenure of
Supreme Court judges and greater recognition of case law as a source of law.
• These characteristics are predictors of the efficiency of contract enforcement – measured
both objectively and subjectively – and of the security of property rights.
2) Evidence on government regulation: consistent with styles for addressing social problems:
• Civil law: more likely through government ownership and mandates
• Common law: more likely to do so through private contract and litigation.
 Common law’s regulation supports private contracting vs. dictates outcomes.
3) Evidence on finance is also consistent:
• Better shareholder & creditor protection in common law than in French civil law is
consistent with the historical narrative of the greater security of private property.
• Common law may have advantage in financial markets because they change quickly, i.e.,
the adaptability of judge-made law, as in Delaware courts (Beck et al, 2003).
•
The nature of statutory protection of investors in common law countries, as compared to civil
law countries, is also broadly consistent with the implications of the historical account.
Legal Origin and Culture
•
•
Stulz and Williamson (2003) suggest that, in light of the hostility of some of the
religious traditions to lending on interest, religion may be a more fundamental
determinant of legal rules governing creditor protection than LO.
Licht et al. (2005) present a more sweeping theoretical and empirical case for
culture, using broad sociological measures of cultural attitudes.
•
However, the facts are:
• Religion is not as important a determinant of creditor rights as LO (also Djankov
et al. 2007).
• Most indices of cultural attitudes do not influence creditor rights holding LO
constant:
• Some evidence that a nation’s masculinity is not conducive to creditor
protection, while belief in the independence of children is,
• But neither of these makes a big dent in the effect of LO on creditor rights.
•
•
We do not propose that culture is unimportant.
But the effects of LOs remain large and significant controlling for culture.
Creditor Rights, Culture and Legal Origin:
Percentage of Catholic Population
Creditor Rights, Culture and Legal Origin:
Percentage of People that say Strangers can be Trusted
Legal Origins and Politics
•
Politics presents a broader challenge to the explanatory power of LO:
• Hellwig (2000), Rajan and Zingales (2003), Pagano and Volpin (2005, 2006),
Perotti and von Thadden (2006), Roe (2006), and Mueller and Philippon (2006).
• They mostly deal with Western Europe or the Wealthy West.
Political theories:
• Sometime in mid 20th c. Continental European countries formed alliances between
families that controlled firms and (typically organized) labor.
• The alliances were: (1) a response to crises from hyperinflation, depression, or defeat
in war; (2) sought to win elections and secure insiders’ economic rents away from the
“outsiders,” such as unorganized labor, minority shareholders, corporate challengers, or
potential entrants.
• When these alliances won elections, they wrote legal rules to benefit themselves:
• Families got poor protection of outside shareholders  keep control benefits
• Labor got social security & worker protection laws keep employment & wages.
• Families and labor got the laws protecting them against product market
competition.
Legal Origins and Politics (2)
•
Continental Europe vs the US in the 20th c.:
• The political story is part of a broader narrative of Continental European history in
the 20th c., in which the response to crisis is characterized by the rise of
proportional representation (Alesina & Glaeser 2004, Persson & Tabellini 2003),
socialist politics (Alesina & Glaeser 2004), and social democracy (Roe 2000).
• The US was spared from these events, so it did not get the laws adopted on the
Continent.
•
The legal rules observed in the data, are thus outcomes of this democratic process,
and not of “permanent” conditions, such as LOs.
If politics were appropriately controlled for in the regressions, LO would not matter.
•
•
Some implications of political theories are plausible and broadly consistent with the
evidence:
1. Countries with strong shareholder protections have weak protections of labor and
low regulations of entry.
2. We see social democracies in Continental Europe but not in the US.
Legal Origins and Politics:
An analysis of the Political Theory
•
What is the evidence when political variables are added to the regressions?
•
Regressions of legal and institutional rules on 3 variables of the political theories:
• Proportional representation = Form of democracy seen as an adaptation to
political demands of labor in the early 20thc.  Only for democracies!
• % years in 1928-95 when chief executive and largest party in legislature were
leftist or centrist.
• Union density = % total work force affiliated to labor unions in 1997.
•
Results:
• Political variables explain the variation in legal rules only occasionally.
• LOs continue to explain the variation even with political variables in, and the
difference between common law and French civil law remains highly statistically
significant.
• Each political variable is surely measured with error, and specifications may not
capture the full subtlety of the political theories, but political variables are rarely
significant in contrast with LOs.
Politics and Legal Origin
Legal Origins and Politics:
An analysis of the Political Theory (2)
•
Does the democratic process lead to the observed legal rules?
• This is a key implication of all the political models: it predicts that the relationship
between LOs and laws should not hold outside democracies.
• But under legal theories, LO should predict legal rules in both autocracies and
democracies.
•
Note of caution:
• It is NOT our conclusion, nor our belief, that politics do not matter for corporate
governance, government regulation, or the structure of the judiciary.
• The critics offered a different hypothesis, namely that LO is just a stand-in for
politics.
• For this hypothesis, there is no support.
Table IX: Legal origin in countries with Autocratic governments
(5 graphs of the negative dummies of Legal Origins in the various
groups of variables)
Under Construction !!!!
French Legal Origin
French Legal Origin
German Legal Origin
German Legal Origin
Ln(GDP per capita)
Ln(GDP per capita)
Constant
Constant
Observations
Observations
R-squared
R-squared
(1)
(1)
Anti-SelfAnti-SelfDealing
Dealinga
-0.3421
-0.3421a
[0.0792]
[0.0792]
-0.2508
-0.2508
[0.1487]
[0.1487]
0.1074b
0.1074b
[0.0445]
[0.0445]
-0.2647
-0.2647
[0.3658]
[0.3658]
37
37
0.36
0.36
(2)
(2) in
Disclosure
Disclosure
Prospectusin
Prospectus
-0.3642a
-0.3642a
[0.0858]
[0.0858]
-0.1145c
-0.1145c
[0.0639]
b
[0.0639]
0.0907
0.0907b
[0.0401]
[0.0401]
-0.0156
-0.0156
[0.3398]
[0.3398]
26
26
0.46
0.46
(3)
(3)
Creditor Rights
Creditor Rights
-1.1816a
-1.1816a
[0.2685]
[0.2685]
-0.7960b
-0.7960b
[0.3729]
b
[0.3729]
0.2571
0.2571b
[0.0989]
[0.0989]
0.3189
0.3189
[0.8444]
[0.8444]
78
78
0.22
0.22
(4)
(4)
Debt
Debt
Enforcement
Enforcement
-14.3174b
b
-14.3174
[6.6720]
[6.6720]
-3.4763
-3.4763
[7.9660]
[7.9660]
21.8679a
21.8679a
[4.3514]
[4.3514]a
-141.9287
a
-141.9287
[39.5086]
[39.5086]
39
39
0.51
0.51
(5)
(5)
Govt Ownership
GovtBanks
Ownership
Banksb
0.2822
0.2822b
[0.1172]
[0.1172]
0.3852b
0.3852b
[0.1514]
[0.1514]
-0.1259c
-0.1259c
[0.0657]
a
[0.0657]
1.2749
1.2749a
[0.4261]
[0.4261]
47
47
0.18
0.18
(6)
(6)
Ln(Steps)
Ln(Steps)
0.4438a
0.4438a
[0.0925]
[0.0925]
0.0936
0.0936
[0.1618]
[0.1618]
-0.1023b
-0.1023b
[0.0392]
a
[0.0392]
2.8843
2.8843a
[0.3254]
[0.3254]
47
47
0.32
0.32
(7)
(7)
Labor laws
Labor laws
0.2040a
0.2040a
[0.0464]
[0.0464]
0.1333b
0.1333b
[0.0559]
[0.0559]
0.0011
0.0011
[0.0257]
[0.0257]
0.3142
0.3142
[0.2157]
[0.2157]
46
46
0.28
0.28
Table IX: Legal origin in countries with Autocratic governments
(5 graphs of the negative dummies of Legal Origins in the various
groups of variables)
Under Construction !!!!
(1)
Anti-SelfDealing
-0.3421a
[0.0792]
-0.2508
[0.1487]
(2)
Disclosure in
Prospectus
-0.3642a
[0.0858]
-0.1145c
[0.0639]
Ln(GDP per capita)
0.1074b
[0.0445]
Constant
-0.2647
[0.3658]
37
0.36
French Legal Origin
German Legal Origin
Observations
R-squared
(3)
-1.1816a
[0.2685]
-0.7960b
[0.3729]
(4)
Debt
Enforcement
-14.3174b
[6.6720]
-3.4763
[7.9660]
(5)
Govt Ownership
Banks
0.2822b
[0.1172]
0.3852b
[0.1514]
0.0907b
[0.0401]
0.2571b
[0.0989]
21.8679a
[4.3514]
-0.0156
[0.3398]
26
0.46
0.3189
[0.8444]
78
0.22
-141.9287a
[39.5086]
39
0.51
Creditor Rights
(6)
(7)
Ln(Steps)
Labor laws
0.4438a
[0.0925]
0.0936
[0.1618]
0.2040a
[0.0464]
0.1333b
[0.0559]
-0.1259c
[0.0657]
-0.1023b
[0.0392]
0.0011
[0.0257]
1.2749a
[0.4261]
47
0.18
2.8843a
[0.3254]
47
0.32
0.3142
[0.2157]
46
0.28
Legal Origins and Historical Arguments
•
Suggests the correlation between common law and finance is a 20thc. phenomenon:
• If we look at data in the early 20thc the correlation does not exist. Since LOs
predate the 20thc, they cannot account for the differences in financial development.
• Rajan & Zingales (2003) is the starting critique. Using individual country sources,
they show stock market capitalization to GDP as of 1913 for 6 common law and 18
civil law countries (10 French).
• Focused on finance  But an alternative theory must address all the evidence!
• The Historical Argument has two component parts:
1) In 1913, French civil law countries had more developed financial markets than common
law countries:
• RZ’s 1913 sample: 5 common law countries had average stock market to GDP of
53%, compared to 66% for the 10 French civil law countries.
2) Correlation of common law and financial development emerges over the 20thc,
inconsistent with LLSV:
• In the “Great Reversal,” the initial (1913) French LO superiority disappears with
MarketCap/GDP ratios of 130% and 74% in 1999 for common law and French civil
law countries (RZ 2003).
Stock market capitalization over GDP
(based on Rajan and Zingales, 2003)
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
1913
1923
1933
1943
1953
1963
1973
1983
English Legal Origin
French Legal Origin
German Legal Origin
Scandinavian Legal Origin
1993
Legal Origins and Historical Arguments (2)
1) Measurement Problems in Several Countries:
• The relevant measure to test LOs’ influence is a country’s capitalization of equities listed on that
country’s stock exchange(s) whose shareholders are subject to the country’s legal protection.
• RZ undertook to find such numbers, but doing so for early 20thc is difficult because:
1. Many securities trading were bonds rather than stocks, and many were government bonds.
2. Many firms listed were incorporated or had primary listings, in Europe/U.S.
 So, for a given country, these factors may lead to an overestimate of market value of stocks
subject to national shareholder protection laws. For example:
A) Cuba: RZ’s most financially developed country in 1913 [MktCap/GDP = 219%].
• The largest company with listed stock was Havana Electric (incorporated in New Jersey)
• If one excludes bonds and looks only at stocks, the Cuba ratio falls to 33% and the French
civil law average goes from 66% to 47% (i.e., below their common law average).
B) Egypt: RZ’s second most financially developed country in 1913 [MktCap/GDP =109%].
• It appears it includes debt (Tignor, 1984). Largest firms incorporated/listed in UK or France.
• We estimate a correct observation for Egypt of at most 40%
C) Rich countries:
• France: RZ estimate 78%, but a recent estimate by Bozio (2002) puts it at 54%.
• US:
RZ has 39%, but Sylla (2006) proposes the 95% from Goldsmith (1985).
Legal Origins and Historical Arguments (3)
2) Compare the two mother countries: England and France.
• RZ recognize that England was more financially developed than France in early 20th c.
• Standard narratives see Paris as a financial backwater (Kindleberger 1984).
• A formal comparison is possible using France, from Bozio (2002), and UK, from Michie
(1999), and adjusting to exclude corporate bonds using Goldsmith (1985).
3) Common and civil law countries in 1913 based on Goldsmith (1985):
• Consistent with Kindleberger, Britain is ahead of France as far back as the middle of the 19th
c., and perhaps even earlier. So, interestingly, is the United States.
• Using US 1912 data, Goldsmith has 4 common law and 7 civil law countries. Even with India
pulling way down the common law average and no underdeveloped civil law country in
1913’s sample:
Common law = 88%; French LO (France & Belgium) = 77%; Overall Civil law = 69%.
• Goldsmith’s data has its own problems. But it independently confirms that the relative
financial underdevelopment of common law in early 20th c. is a myth.
Conclusion:
• Contrary to RZ (2003), common law countries appear to be more financially developed than civil
law ones at the start of the 20th c, and in particular Britain is ahead of France.
• Over the 20th c the differences have widened, which needs to be explained.
• The alleged Great Reversal that animated political and historical writings did not really happen.
Stock market capitalization over GDP
France and Great Britain
% 160
140
120
100
80
60
40
20
France
Great Britain
1990
1980
1970
1960
1950
1940
1930
1920
1910
1900
1890
1880
1870
1860
1850
1840
1830
1820
1810
1800
0
Measurement ahead of Policy
•
This research sheds light on the nature of good reforms, and on the specific policy levers.
•
•
•
•
Helps understand why so many developing countries end up with inefficiently high
levels of regulation, especially in the civil law world.
Even in the developed countries, the levels of regulation of many activities (labor
markets and entry) were probably adopted in a less orderly environment, or for
reasons of consistency or habit, and as such are excessive for modern markets.
In finance, institutions that replaced markets must now be replaced by those that
sustain them.
• Developing countries: the mismatch between the institutions and needs is even
greater.
• The heavy-handed regulatory policy that might work tolerably well in continental
Europe translates into over-regulation, corruption, and suppression of
entrepreneurship in the developing world.
But, even when the measured rules are not the entire problem, and thoughtless formalistic
reforms likely to fail, these rules can provide relevant data and point closer where the
problem actually lies.
Measurement ahead of Policy (2)
•
Recent sketchy evidence is broadly consistent with the optimistic view that in some
circumstances the laws we measure are the reason for inefficient outcomes:
1) Reductions of entry regulations:
• 55 countries lowered administrative costs to start a business in 2005-2006 (DB 2006).
• Russia: beneficial effects of firm entry after reforms (Yakovlev/Zhuravskaya 2007)
2) Mixed picture for labor markets:
• Labor markets were liberalized in the OECD in the last 15 years, although most
reforms pertained to temporary rather than permanent employment (OECD 2006).
• No tendency for liberalization in Latin America in the 1990s (Heckman/Pages 2004).
3) Investor protection:
• Improvements in shareholder rights in OECD during the 1990s (Pagano/Volpin 2005).
• Tendency toward improving shareholder rights in the EU (Enriques/Volpin (2007)
 Although too little to resolve the problem of related-party transactions.
• Emerging markets: some examples of improvement, such as Mexican securities laws
(Chong/Lopez-de-Silanes 2008) and bankruptcy reform (Gamboa/Schneider 2007).
•
•
Much of the evidence is circumstantial, and confined to the developed world.
But if the world remains peaceful and orderly, the attraction of market-friendly reforms will
increase.
Conclusions
•
Since the publication of the two LLSV articles, this research has evolved a great deal:
• Nonetheless, the fundamental contribution appears to be standing:
• LOs have significant consequences for the institutional framework of the
society, and for economic outcomes.
• The range of legal, economic, and social spheres where legal origins have
consequences has broadened.
•
Four propositions appear to be correct:
1) Legal rules differ systematically across countries, and these differences can be
measured and quantified.
2) Differences in legal rules are significantly accounted for by the differences in LO.
3) Historical divergence in legal traditions (i.e., policy-implementing focus of civil law
versus dispute-resolving focus of common law – explains why legal rules differ.
4) The measured differences in legal rules matter for economic and social outcomes.
•
The outlines of a coherent theory have become clearer but not all the empirical issues
have been settled, or that the LO theory will survive further scrutiny.