British Legal Institutions and Transaction Costs in the Early Transport Revolution

For centuries scholars have tried to identify which features of legal systems are crucial to economic activity. Recently the legal origins school has posited that some legal systems contribute to different degrees of transaction costs and hence different levels of trade, investment, and innovation. The common law legal system is often singled out because it is believed to provide strong protection for property rights.1 According to the standard narrative, British landowners could invest in their property with little fear of government expropriation or judicial activism. Laws and norms protecting rights to land were eventually extended to contractual arrangements in fi nance following the po liti cal transformations of the seventeenth century (North and Weingast 1989; Neal 1990). In the long run, Britain succeeded eco nom ical ly, so the argument goes, because its legal system was conducive to development. The legal origins view may be helpful in explaining Britain’s precocious leadership in agriculture and fi nance, but it is not an obvious fi t in the infrastructure sector.2 Infrastructure projects often pit landowners against promoters because land is an input into infrastructure investment. In most societies, the legal system has to choose between the rights of landowners and promoters when determining compensation for land taken or damaged. Given that Britain’s legal system has traditionally provided strong property rights to land, it is not clear that courts would be friendly to infrastructure promoters in condemnation proceedings.