Why Stare Decisis?∗

All Courts rule ex-post, after most economic decisions are sunk. This can generate a time-inconsistency problem. From an ex-ante perspective, Courts will have the ex-post temptation to be excessively lenient. This observation is at the root of the rule of precedent, known as stare decisis. Stare decisis forces Courts to weigh the benefits of leniency towards the current parties against the beneficial effects that tougher decisions have on future ones. We study these dynamics and find that stare decisis guarantees that precedents evolve towards ex-ante efficient decisions, thus alleviating the Courts’ time-inconsistency problem. However, the dynamics do not converge to full efficiency. JEL Classification: C79, D74, D89, K40, L14.