Stare decisis: Rhetoric and substance

Stare decisis allows common law to develop gradually and incrementally. We show howjudge-made law can steadily evolve and tend to increase efficiency even in the absence ofnew information. Judges' opinions must argue that their decisions are consistent withprecedent: this is the more costly, the greater the innovation they are introducing. As aresult, each judge effects a cautious marginal change in the law. Alternative models inwhich precedents are either strictly obeyed or totally discarded would instead predictabrupt large swings in legal rules. Thus we find that the evolution of case law isgrounded not in binary logic fixing judges' constraints, but in costly rhetoric shapingtheir incentives. We apply this finding to an assessment of the role of analogicalreasoning in shaping the joint development of different areas of law.

The return of the wage Phillips curve

The standard New Keynesian model with staggered wage settingis shown to imply a simple dynamic relation between wage inflationand unemployment. Under some assumptions, that relation takes aform similar to that found in empirical wage equations-starting fromPhillips' (1958) original work-and may thus be viewed as providingsome theoretical foundations to the latter. The structural wage equation derived here is shown to account reasonably well for the comovement of wage inflation and the unemployment rate in the U.S. economy, even under the strong assumption of a constant natural rate ofunemployment.

Altruism, uncertain lifetime and the distribution of wealth

This paper studies the dynamics of the distribution of wealth in ageneral equilibrium framework. It considers an overlapping generationsmodel with production and altruistic preferences in which individualsface an uncertain lifetime and annuity markets do not exist. Thispaper focuses on the role that accidental bequests, voluntary bequests,and non--negativity constraints on bequests play in the dynamics of thedistribution of wealth. It is proved that the equilibrium interestrate is lower than the one that satisfies the modified goldenrule. In this economy, a social security system not only plays aninsurance role, but also prevents capital overaccumulation. In fact,this paper shows that a pay--as--you--go social security systemdecentralizes the social planner solution as a competitive equilibrium.