Legal Evolution: Integrating Economic and Systemic Approaches

Abstract

This paper explores the scope for synthesis between economic and systemic approaches to the understanding of legal evolution. The evolutionary and epistemic branches of game theory predict that stable norms will emerge when agents share common beliefs concerning future states of the world. Systems theory see the legal order as a social system which reproduces itself by recursive acts of legal communication, thereby giving rise to self-reference and operational closure. At the same time, the legal system is cognitively open, that is to say, indirectly influenced by other social systems in its environment. This gives rise to the possibility of coevolution of law and the economy. It will be argued that systems theory, by developing the idea of law as an adaptive system with cognitive properties, provides a missing link in the evolutionary theory of norms. Recent game theoretical models imply that common knowledge is not entirely endogenous to agents’ interactions, but depends to a certain extent on emergent normative structures. These include the public representations of common knowledge which are provided by the legal system. The paper explores the implications of this idea, argues for an integrated economic and systemic analysis of legal evolution, and considers some of the theoretical and methodological implications of such a step.

Keywords: Legal evolution, game theory, correlated equilibrium, social norms, systems theory, contract theory, legal origins

JEL Classification: C72, C73, K12, K22