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Judicial efficiency and entrepreneurs’ expectations on the reliability of European legal systems

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Abstract

Many theories have tried to discover the determinants of entrepreneurship while at the same time defining a policy contour for its promotion. This study advances the extant discussion by focusing on the specific relationship between national judiciaries’ performances and expectations about the reliability of the legal framework, which is an important component fostering entrepreneurial action. More precisely, by conducting an empirical investigation on a number of European countries, it assesses the role that judicial efficiency plays in reducing endogenous uncertainty in markets.

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Notes

  1. It is for example possible to envisage a downsized, although efficient, court unable to tackle all the filled lawsuits or vice versa.

  2. Although alternative systems of dispute resolution exist, such instruments are at best complements of the judiciary. Hence, broadly speaking, the judiciary represents the main productive organization of legal adjudication (Falavigna et al. 2014).

  3. We believe that these courts are actually the ones more interested in claims related to business transactions.

  4. Although the member states participating to CEPEJ are 47, data availability allows so far to account only for 38 of them.

  5. A flourishing body of literatures follows this approach. Within this journal see e.g. Schneider (2005) and Deyneli (2012) while for a broader survey see Falavigna et al. (2014).

  6. For more information on the CIV_LIB variable, refer to: http//www.eiu.com.

  7. Both the GDP and the BUDGET variables have been normalized accounting for Purchasing Power Parity (PPP) indexes extracted from the International Monetary Fund (IMF) World Economic Outlook dataset.

  8. Although Cyprus is generally acknowledged among Common Law countries because of its past British colonial occupation, for sakes of simplicity we have coded it as a nation belonging to the French Law tradition. This choice relies upon a legal and a statistical motivation. Since independence from the UK in 1960, several reforms have approached the Cypriot legal system to the other continental ones. Furthermore, given the relatively small sample size and the fact that Cyprus would be the only country belonging to the Common Law family, introducing another variable would end up to be an inconvenient loss of an additional degree of freedom in our regressions. However, in unreported models, results were unaffected by neither the exclusion of Cyprus from the sample or the introduction of a further variable.

  9. It is worth reminding that the EFF is calculated according to the [1,  + ∞) interval; this implies that efficiency decreases for values of EFF > 1.

  10. A similar reasoning can be made for other measures assessing judiciary’s performances such as the ‘judicial delay’, i.e. the time to disposition (Christensen and Szmer 2012) or the size of workload (Dakolias 1999; Rosales 2008). All this measure are not weighting the output with the inputs.

  11. Potential issues of reverse causality might be overcome by referring to the “ossification” of legal systems (McCubbins and Page 1986; Burch 2008). If it is undeniable that in the long run there might be a feedback between institutional change and socio-economic variables, in the short run the rigidities of legal dynamics impose to legislators costly deviations from the status quo of a given political equilibrium.

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Acknowledgments

We are very grateful for the helpful comments and suggestions provided by two anonymous referees and participants to the Swedish Entrepreneurship Forum’s Workshop on Regulation, Entrepreneurship and Firm Dynamics held in Stockholm in August 2013 and to the Polis Fall Seminar held at the University of Eastern Piedmont in October 2013. The usual disclaimers apply.

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Authors and Affiliations

  1. Scuola Nazionale dell’Amministrazione, Presidenza del Consiglio dei Ministri, Rome, Italy

    Roberto Ippoliti

  2. IEL International Program in Institutions, Economics and Law, Università di Torino, Turin, Italy

    Alessandro Melcarne

  3. Università del Piemonte Orientale, Alessandria, Italy

    Giovanni B. Ramello

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  1. Roberto Ippoliti
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  2. Alessandro Melcarne
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  3. Giovanni B. Ramello
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Correspondence to Alessandro Melcarne.

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Ippoliti, R., Melcarne, A. & Ramello, G.B. Judicial efficiency and entrepreneurs’ expectations on the reliability of European legal systems. Eur J Law Econ 40, 75–94 (2015). https://doi.org/10.1007/s10657-014-9456-x

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