Codification, Access to Justice and Contractual Innovation

We model how contracting on novel transactions face uncertain enforcement because of limited development of judicial expertise. This may allow stronger parties to distort contract enforcement by investing more in legal argumentation. As a consequence, only equal parties initially choose to contract with each other. If inequality is large, introducing standardized template contracts with which limit admissible evidence reduces distortions in adjudication, and expands the scale of contracting. Thus codification may arise when opportunities for trade expand among more unequal parties, and to induce contracting among agents who did not previously choose to trade with each other. Standardization however eliminates judicial learning on recognizing new contingencies, and thus the accumulation of precedents which over time enables parties to write reliable contingent contracts. We discuss various episodes of codification of contract law in the XIX century in both civil and common law countries, which were particularly important for tradable contracts such as bills of exchange, whose liquidity depend on the ability to transfer contractual rights to new investors with unknown wealth. We are grateful to Raj Iyer and Giuseppe Dari Mattiacci for useful comments. We cannot thank enough Katharina Pistor for her extensive discussions and insightful commentary.