Overruling and the Instability of Law
We investigate the evolution of common law under overruling, a system of precedent change in which appellate courts replace existing legal rules with new ones. We use a legal realist model, in which judges change the law to reflect their own preferences or attitudes, but changing the law is costly to them. The model's predictions are consistent with the empirical evidence on the overruling behavior of the U.S. Supreme Court and appellate courts. We find that overruling leads to unstable legal rules that rarely converge to efficiency. The selection of disputes for litigation does not change this conclusion. Our findings provide a rationale for the value of precedent, as well as for the general preference of appellate courts for distinguishing rather than overruling as a law-making strategy.
We are grateful to Olivier Blanchard, Filipe Campante, Edward Glaeser, Claudia Goldin, Oliver Hart, Elhanan Helpman, Anup Malani, Fausto Panunzi, Torsten Persson, Richard Posner, Ilia Rainer, Alan Schwartz, Kathryn Spier, Pablo Spiller, Mathew Stephenson, David Stromberg, and especially Louis Kaplow for helpful comments. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.