Information, Precedent, and Statute

I compare precedent and statute in cost-effectiveness terms. To make laws, a lawmaker needs information. Information has a cost. That cost is sensitive to the choice of law production technology. The orthodoxy is that the courts acquire information more cheaply. Litigants volunteer it in exchange for adjudication. I qualify that point in two ways. Firstly, if the information in question has to be produced purely for the purposes of law production, then litigants will only bear its cost when their expected benefits from a favourable ruling are higher than the information’s production cost. Law being a public good, we might expect that a litigant’s private benefit from a favourable ruling will usually be lower than the social benefit of there being a law applicable to all. When it is so, the legislature is superior. It has the budgetary powers to initiate the production of information; the courts do not. Secondly, it is very costly for judges to agree on points of ideology. When a case is decided, the presiding judge does not normally know the ideological preferences of the appellate panel. Nor do the members of that panel know the ideological preferences of the cassatory court. If the cost of reversal to individual judges is positive, then in most cases they will have no incentive to try to change the law. The same is evidently not true of legislatures. The courts come out inferior. After developing these points, I introduce some refinements. Specifically, I argue that the legislature is better at handling uncertainty, that the time value of laws is usually reflected in the rate of litigation, and that a system which combines statute and precedent is better than one which does not. I also consider the operation of interest groups under different institutional arrangements. Lastly, I discuss the policy implications of my theory. I focus on proposals to curb the volume of litigation in society, sunset clauses, amici curiae and Attorney Generals, and the comparison between the common and the civil law.

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