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AUTHOR:
Emanuela Carbonara and Francesco Parisi
TITLE:
The Economics of Legal Harmonization
SUGGESTED CITATION:
Emanuela Carbonara and Francesco Parisi
(2006)
"The Economics of Legal Harmonization",
German Working Papers in Law and Economics:
Vol. 2006:
Article 16.
http://www.bepress.com/gwp/default/vol2006/iss1/art16
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ABSTRACT:
The global legal landscape is undergoing substantial transformations,
adapting to an increasingly global market economy. Differences
between legal systems create obstacles to transnational commerce.
Countries can reduce these legal differences through non-cooperative
and cooperative adaptation processes, fostering networks of trade that
link diverse legal traditions. In this article, we study the process of
legal adaptation, looking at non-cooperative and cooperative solutions
that can alternatively lead to legal transplantation, harmonization and
unification. The presence of adaptation and switching costs renders
unification extremely difficult. In the general case, cooperative solutions
reduce differences to a greater extent than non-cooperative solutions,
but rarely lead to complete legal unification. We consider the
case of endogenous switching costs and show that when countries have
the possibility to reduce their own switching costs to facilitate harmonization,
they may actually choose to raise them. This may lead to
the paradox that countries engaging in cooperative harmonization end
up with less harmonization than those that pursued non-cooperative
strategies. This explains why differences are often bridged by private
codifications and by the evolving norms of the lex mercatoria.
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