Deterrence and Origin of Legal System: Evidence from 1950 - 2000

Abstract

Legal systems of countries include laws, regulations and procedures that may deter acts harmful to others. Deterrence incentives created by legal systems underlie effects documented in the Law and Finance literature, which has shown that legal systems can offer protection to investors against expropriation. This protection in turn fosters the development of a country's financial markets. Incentives created by legal system can extend beyond investor protection, deterring other types of harmful acts as well. This study presents evidence on deterrence incentives in other areas, finding that fatality rates from motor vehicle accidents and from other types of accidents vary significantly across countries classified by origin of legal system. Motor vehicle accident fatality rates in countries whose legal systems are based on English Common Law generally have been lower than those in civil law countries, especially countries with legal systems based on French Civil Code or former members of the Soviet Union and Eastern Bloc countries. Fatality rates from other types of accidents are lowest in common-law countries; followed by those in French, then German, then Scandinavian Civil Code countries, with the highest fatality rates occurring in former Eastern Bloc and Soviet Union countries. The pattern of motor vehicle accident fatality rates resembles patterns of corporate control values found in the Law and Finance literature, which is evidence that aspects of a country's legal system protecting investors also deter other types of possibly harmful acts. The disparity between low motor vehicle accident fatality rates and high fatality rates from other types of accidents in Scandinavian countries is more difficult to explain. Scandinavian laws targeting motor vehicle operation, especially while under the influence of alcohol or drugs, could explain their motor vehicle accident fatality rates being among the lowest in the world, while generous social insurance programs could weaken incentives normally deterring individuals from other types of dangerous behavior. Still, the disparity between fatality rates in these two categories in Scandinavian Civil Code countries is puzzling.