Essays on legal system and economic performance

Laws in most nations are built on a common law system or a civil law system. These two legal systems, emerging from different ideological and political backgrounds, have shaped the sharply divergent legal institutions. This thesis investigates how and why the structural differences in these legal systems influence economic performance of nations.; This thesis presents empirical evidence that the legal system affects economic growth. Common law countries experienced faster economic growth than civil law countries during the period 1960–1992. This variation can be explained in part by differences in legal structure between the common law and civil law systems. The structural hallmarks of the common law system, recognition of judge-made law as a main source of law and the judicial control over administration action, have positive effects on growth. Such features of the common law system promote growth through more effective public goods provision, greater security of property rights, and better quality of government.; Efficiency of judge-made law can be explained by the incentives of common law judges. As the proportion of efficient precedent rises, common law judges are more inclined to choose efficient rules in their decision-making. These complementarities of judicial decision making, manifested in the practice of decision according to precedent, reinforce efficient rules and direct common law judges' incentives toward efficiency. Thus, if initial historical conditions are appropriate, common law judges improve the efficiency of the law relative to what their ideological preference dictates.; Judicial review of government action by an independent judiciary affects the resource allocation of a society. Judicial review reduces waste of resources by imposing a self-enforcing limit on the ability of politicians to extract political rent. The judicial review also influences the production of public goods. A judiciary with insufficient power to review government policy may lead to underprovision of public goods. Thus, a common law system, which grants greater authority to the judiciary to review government actions, reduces political rents further and guarantees more effective provision of public goods than its counterpart.