II. Theoretical Background Why should legal origin matter? One possibility is that the quality of legal rules varies systematically by origin. LLSV (1997, 1998) provide evidence that common law countries have better systems of corporate law on average. Nevertheless, it is difficult to make out a strong case for the superiority of the rules produced by the common law or the civil law across the board Early scholarship in law and economics contended that the process of litigation should lead to the survival of efficient rules in a common law system(Posner, 1972; Rubin, 1977; Priest, 1977 Priest Klein, 1984). The unspoken implication was that statutory law would be generally less efficient than judge-made law. More recently, however, claims about the comparative efficiency of the common law have nearly ceased. Posner appears to have recanted his belief in the superiority of judge-made to legislative rules( Backhaus 1997). Tullock(1997) provides a heated refutation of the notion of an "efficient"common law and argues for the superiority of civil law codification Another possibility is that the average quality of rules is similar, but the common law provides greater stability and predictability. The common law tradition includes two features-respect for precedent and the power of an appellate court to reverse the legal conclusions of a lower court-that should result in more predictable outcomes(Manne, 1997) These features are nominally lacking in the civil law. Only the code itself-not prior judicial decisions or the pronouncement of a superior tribunal-counts as binding law in the civil law tradition. Legislatures, unlike common law courts, are not bound by precedent. It is debatable, however, whether the difference is a sharp in practice as it is in theory. Civil law courts appear in practice to consult precedents and the decisions of higher courts(Merryman, 1985)5 II. Theoretical Background Why should legal origin matter? One possibility is that the quality of legal rules varies systematically by origin. LLSV (1997, 1998) provide evidence that common law countries have better systems of corporate law on average. Nevertheless, it is difficult to make out a strong case for the superiority of the rules produced by the common law or the civil law across the board. Early scholarship in law and economics contended that the process of litigation should lead to the survival of efficient rules in a common law system (Posner, 1972; Rubin, 1977; Priest, 1977; Priest & Klein, 1984). The unspoken implication was that statutory law would be generally less efficient than judge-made law. More recently, however, claims about the comparative efficiency of the common law have nearly ceased. Posner appears to have recanted his belief in the superiority of judge-made to legislative rules (Backhaus 1997). Tullock (1997) provides a heated refutation of the notion of an “efficient” common law and argues for the superiority of civil law codification. Another possibility is that the average quality of rules is similar, but the common law provides greater stability and predictability. The common law tradition includes two features–respect for precedent and the power of an appellate court to reverse the legal conclusions of a lower court–that should result in more predictable outcomes (Manne, 1997). These features are nominally lacking in the civil law. Only the code itself–not prior judicial decisions or the pronouncement of a superior tribunal–counts as binding law in the civil law tradition. Legislatures, unlike common law courts, are not bound by precedent. It is debatable, however, whether the difference is a sharp in practice as it is in theory. Civil law courts appear in practice to consult precedents and the decisions of higher courts (Merryman, 1985)