Do legal origins matter? The case of bankruptcy laws in Europe 1808-1914

Abstract

Since LLSV early 1998 paper, a growing body of research has argued that "legal origins" have a country-specific, time-invariant effect on property rights and economic development. Following upon LLSV's own methodology, an original data-set of 51 bankruptcy laws has been built: it ranges over 15 European countries and more than hundred years , and summarises how the rights and incentives of the parties were defined, as the procedure unfold. The first conclusion is that all legal traditions protected strongly creditors' rights, over the whole period; only English law comes out prima facie as less protective. Evidences then suggest that the evolution of these laws was influenced less by their past than by continent-wide trends, arguably linked to capitalist development. An early century model thus saw heavy repression of failed debtors and highly regulated procedures. After a transition period from the late 1860's to the late 1880s', prison for debt was abandoned, rehabilitation became easier, and the parties got much more room to bargain.

Endogenous legal traditions and economic outcomes

“…This mechanism is also consistent with recent evidence on the 19th century European bankruptcy law( Sgard, 2006 ) and the inverted U-shaped link between income and genetic diversity( Ashraf and Galor, 2013 ).…”

“…The papers most closely related to mine explore the idea that legal origins could be merely a proxy for other factors influencing legal rules and outcomes, like culture ( Licht et al, 2005 ), history ( Rajan and Zingales, 2003;Sgard, 2006 ), political institutions ( Pagano and Volpin, 2005;Acemoglu and Johnson, 2005;Perotti and Von Thadden, 2006 ), and colonial policies ( Klerman et al, 2011 ). 1 None of these contributions however considers the endogeneity of legal traditions and the methodological challenges related to the measurement of legal institutions and different types of outcomes.…”

Law and Finance c. 1900

“…For example, using more comprehensive indices of debtor punishment, Sgard (2006) found the bankruptcy laws of common law countries to be more lenient than those of civil law countries throughout the nineteenth century. Civil law countries' harsh punishments for debtors were eliminated only in the second half of the nineteenth century.…”

Investigating Capitalism Aversion

“…Never mind the fact that when you look in detail at the evolution of particular laws thought to matter for economic performance, such as bankruptcy law, what you find is that such laws evolved very similarly throughout Europe during the 19th century, no matter whether the country in question was Germanic, Latin or Anglo-Saxon (Sgard, 2006); or that Weber's thesis has at this stage been comprehensively debunked by historians and social scientists. More fundamentally, I think most historians would probably take the view that events are important in the long as well as the short run.…”