Are International Merchants Stupid? Their Choice of Law Sheds Doubt on the Legal Origin Theory

Authors

  • Stefan Voigt

    Corresponding author
    1. Institutional and International Economics, Department of Business Administration and Economics, Philipps University Marburg
      *Chair for Institutional and International Economics, Department of Business Administration and Economics, Philipps University Marburg, Barfüßertor 2, D-35032 Marburg, Germany; phone: +49-6421-282 3080; email: voigt@wiwi.uni-marburg.de.
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  • I thank Anne van Aaken, Lorenz Blume, Michael Ebeling, Fernando Gómez-Pomar, Janina Satzer, Nguyen Quoc Viet, and Jan Wagner for stimulating discussions; Henry Hansman, an anonymous referee of this journal, and, in particular, Giesela Rühl, for excellent written comments; Natacha Pinon from the Research Department of the International Court of Arbitration for some data; and Manfred Heider from the International Arbitral Center of the Austrian Federal Economic Chamber for valuable background information. I am grateful to participants of the Sixth Workshop on Institutional Analysis at Pompeu Fabra (Barcelona) as well as the Law & Economics Workshop at the University of Kassel for further suggestions. I bear the sole responsibility for all remaining errors.

*Chair for Institutional and International Economics, Department of Business Administration and Economics, Philipps University Marburg, Barfüßertor 2, D-35032 Marburg, Germany; phone: +49-6421-282 3080; email: voigt@wiwi.uni-marburg.de.

Abstract

In economics, there is currently an important discussion on the role of “legal origins” or “legal families.” Some economists claim that legal origins play a crucial role even today. Usually, they distinguish between common-law, French, Scandinavian, and German legal origin. When these legal origins are compared, countries belonging to the common-law tradition regularly come out best (with regard to many different dimensions) and countries belonging to the French legal origin worst. In international transactions, contracting parties can choose the substantive law according to which they want to structure their transactions. In this article, this choice is interpreted as a revealed preference for a specific legal regime. It is argued that the “superiority-of-common-law view” can be translated into the hypothesis that sophisticated and utility-maximizing actors would rationally choose a substantive law based on common-law tradition, such as U.K. or U.S. law. Although exact statistics are not readily available, the evidence from cases that end up in international arbitration courts (such as the International Court of Arbitration run by the International Chamber of Commerce in Paris) demonstrates that this is not the case. Hence, this evidence sheds some doubt on the superiority-of-the-common-law view.

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