Choice of law and legal evolution: rethinking the market for legal rules

We consider the impact of different choice-of-law regimes on the evolution of formal law. We follow an evolutionary approach to explain possible patterns of legal harmonization and competition. Some of them predict the universal diffusion of a single rule, even though not necessarily efficient. Permissive choice-of-law may lead countries to keep inefficient legal rules and firms to opt out of domestic law, leading to a dichotomy between the rules existing in the books and those utilized in commercial relationships. The emergence of such lex mercatoria may further undermine the legislative incentives to switch to more efficient rules.