Legal Change, Judicial Behavior, and the Diversity Jurisdiction

Abstract

T HE how and why of legal change are of interest to people who study the legal system from any of a variety of different perspectives. It is, for example, of great interest to the economic analyst of law. Although this fact is not widely appreciated, the positive economic theory of the common law,, on which the present authors have written, contains an implicit theory of legal change. It is this: if the common law is an instrument by which society reduces divergences between private and social costs, and otherwise promotes the efficient allocation of resources, it should follow that changes in economic conditions-in relative values-will lead to changes in common law rules. Because this hypothesis is testable by examining the response of the common law to changes in relative values, it provides a tool of potentially great value in the empirical analysis of the economic theory of the common law. Surprisingly, this tool has been little used. Its potential is illustrated by Harold Demsetz's study some years ago of the property rights systems of North American Indians.2 Demsetz treated the customary law of primitive societies rather than the common or judge-made law of our society, but his study casts at least an oblique light on the proposition that the law