IREF - Institute for Research in Economic and Fiscal issues
Fiscal competition and economic freedom
WP 2013-02. Executive Summary
Update (Nov’14): The paper has been accepted for publication in the European Journal of Law and Economics.
There is no doubt that the judiciary plays a crucial role in economic performance. Laws can be more or less friendly towards entrepreneurship, production and investment, but it is clear that if the judicial system is slow and the decision-making process arbitrary, property rights are weakened and uncertainty prevails. In this light, this paper takes advantage of new data published by the European Commission for the Efficiency of Justice in order to investigate what contributes to creating an efficient judicial system. In particular, the empirical investigation put forward by Stefan Voigt and Nora El-Bialy considers two readings of the term “efficiency”. The subjective version refers to people’s opinion with regard to the judiciary (impartial rulings and speed), while the objective version refers to the ratio of resolved litigious cases to total caseload. Following up from there, the authors analyze the traditional explanatory variables suggested in the literature and frame their study by observing that judges operate according to the broad institutional context that characterizes the legal system of their country (traditions and organizational structure), as well to the incentive system they are subject to (remuneration and sanctions for poor performance).
With regard to the institutional context, conventional wisdom maintains that
• the common-law system allows judges to operate more efficiently, because it involves a lower degree of procedural formalism;
• specialized courts perform better than generic courts
• the presence of judicial councils makes the judiciary less dependent on the central government and thus more reliable and administratively nimble;
• performance increases when judges do not have to spend too much time on ancillary tasks and the judicial system is well funded;
• career judges lack the practical skills and familiarity with the real world that their job requires
With regard to incentives, the authors point out that judges are supposed to operate more efficiently when
• their incomes are related to performance
• their fixed salary is higher
• their mistakes or sloppiness is punished
• they are required to undergo training periods
Interestingly enough, the results presented by Voigt and El-Bialy support conventional wisdom to a rather limited extent. In particular,
• The importance of legal formalism is not certain; culture and history (legal origin) appear to be more relevant:
• High expenditure is not a necessary condition to have an efficient judiciary. Put differently, poverty and lack of targeted resources are a poor excuse for bad judicial performance;
• Specialization damages – rather than enhances – efficiency. This result might be due to the fact that specialists are picky and might therefore slow down the speed with which courts operate;
• The presence of judicial councils (or similar bodies) is not an asset, possibly because they develop their own bureaucracies and create tensions with the central authorities. As a matter of fact, judicial councils might well turn into a liability;
• The burden of ancillary duties does affect performance, with a negative sign
• Training could make the judiciary more effective, although the evidence is not very persuasive;
• Salaries make no difference to performance, no matter how they come – linked to performance or in fixed amount. Instead, the presence of sanctions might be effective, although this result is rather nuanced.
To conclude, the study presented by Voigt and El-Bialy sheds new light – and doubts – on a considerable body of conventional wisdom. For example, the well-known argument in favour of common law seems to rest on shaky ground. Moreover, not only is efficiency independent of the budget (or of judges’ remuneration), but there is evidence that the greater the budget, the slower the judicial machine becomes.
Regrettably, there are no magic wands and crystal balls that allow us to formulate precise proposals to enhance efficiency. Yet, one should not be too pessimistic. Voigt and El Bialy induce us to realize that the traditional solutions (resources and material incentives) won’t do and can indeed be counterproductive. Certainly, more investigation is required and more persuasive answers must be found. For example, greater attention should be devoted to the history of a judicial system, to the cultural background it comes from, to the ideological features of the educational system and the values (moral standards) they have absorbed during the years in which they have matured as members of the community in which they operate. Be that as it may, this work encourages us to abandon research agendas that do not seem to carry us very far, and rather devote fresh energies to exploring new avenues.
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