Innovations in Law

Administered systems involve regulation, while efficient markets in ideas require secure property rights and appropriate adjacent institutions. Disruptive technologies typically lead to institutional bottlenecks, which then require accommodations in legal rules and their enforcement. U.S. policy toward innovation and enterprise has always been distinguished by the central role of law and the judiciary. The evolution of legal rules and standards in the United States reveals a remarkable degree of flexibility and responsiveness to innovations. In the short run, the common law economized on legal adjustment costs through “adjudication by analogy,” whereas, in the long run, socioeconomic changes wrought by major inventions ultimately produced more fundamental adjustments in adjacent institutions. This institutional elasticity can be contrasted with the lack of transparency and rigidity that characterized most administered innovation institutions.