An Economic Theory of the Evolution of Common Law

Abstract

IN a comprehensive analysis of common law doctrines, Richard Posner1 argues that the precedents established in the law of property, law of contracts, and the law of torts reflect the standard of economic efficiency. This is a surprising finding in view of the vagaries of individual cases and the disparate motives of the judges involved. It is more surprising still when one considers that judicial decisions were couched in the language of morality, fairness, and justice without explicit reference to anything resembling the modern conception of economic efficiency. Two explanations have been offered to account for this phenomenon. The first, relating to judicial motivation, argues either that common law judges tended to prefer efficiency or, at least, that there was no other plausible motivation which could produce an inefficiency bias.2 The chief limitation of this argument is that, while it may be true, it is largely a conjecture about facts that are somewhat difficult to verify. The second explanation looks upon the evolution of common law as a process of natural selection in which efficient rules survive because they will be less prone to challenge by repeated litigation. The argument, made by Rubin3 and amplified by Priest,4 is that the more inefficient a legal rule, the greater the social cost it imposes and, thus, the greater the probability that it will be challenged through litigation since the benefits of litigation versus