criminal sanctions administered by courts are less important than the existence of financial market regulatory or supervisor for the development of securities markets These three indicators of innovative capacity are not independent of each other. A highly mandatory corporate law limits the ability of private actors to reallocate rights and also limits the scope of judge-made law. The lack of private innovation and judge-made law may also affect adversely the rate of statutory legal change This may be somewhat counterintuitive because statutory legal change can serve to implement radical legal change almost immediately. However, to the extent that statutory law limits the ability of private actors to experiment with new legal forms and restricts the courts'ability to review these experiments, it limits the source of legal innovation to the legislature Kaplow(1997) argues that legislatures can collect relevant information that would allow hem to assess the demand for legal change. From this perspective, limiting the source of innovation to the legislature may not impede innovation. However, litigation may be superior to survey work in revealing critical information that may prompt a reversal in case law or an intervention by the legislature Conversely, a highly enabling law that gives private actors substantial discretion in allocating and reallocating control rights among themselves requires an effective neutral arbiter to resolve disputes among competing claims. The more innovations by private actors, the more difficult it is for courts to keep up with the pace of change and the more likely it is that legal systems will suffer from deterrence failure(Xu and Pistor, 2002) Therefore, highly enabling laws governing the corporate enterprise may result in market collapse, unless the legal system has sufficient capacity to create new institutions to make up for the deficiencies in law enforcement. Put differently, a highly enabling law11 criminal sanctions administered by courts are less important than the existence of a financial market regulatory or supervisor for the development of securities markets. These three indicators of innovative capacity are not independent of each other. A highly mandatory corporate law limits the ability of private actors to reallocate rights and also limits the scope of judge-made law. The lack of private innovation and judge-made law may also affect adversely the rate of statutory legal change. This may be somewhat counterintuitive because statutory legal change can serve to implement radical legal change almost immediately. However, to the extent that statutory law limits the ability of private actors to experiment with new legal forms and restricts the courts’ ability to review these experiments, it limits the source of legal innovation to the legislature. Kaplow (1997) argues that legislatures can collect relevant information that would allow them to assess the demand for legal change. From this perspective, limiting the source of innovation to the legislature may not impede innovation. However, litigation may be superior to survey work in revealing critical information that may prompt a reversal in case law or an intervention by the legislature. Conversely, a highly enabling law that gives private actors substantial discretion in allocating and reallocating control rights among themselves requires an effective neutral arbiter to resolve disputes among competing claims. The more innovations by private actors, the more difficult it is for courts to keep up with the pace of change and the more likely it is that legal systems will suffer from deterrence failure (Xu and Pistor, 2002). Therefore, highly enabling laws governing the corporate enterprise may result in market collapse, unless the legal system has sufficient capacity to create new institutions to make up for the deficiencies in law enforcement. Put differently, a highly enabling law