Legal Process and the Discovery of Better Policies for Fostering Innovation and Growth


Our chapter concerns how legal process can lead to efficient policies for fostering innovation and growth. Future innovation will depend at least as much on how laws are made as on a priori analyses of the optimal content of those laws. Of particular importance is whether U.S. choice of law and choice of forum rules promote an efficient market for law. Our analysis supports three suggestions for improving the law to support growth. First, the rules governing the selection of the jurisdiction whose law governs productive activity can significantly affect growth and innovation. Second, any proposal aimed at increasing growth through a change in law or legal institutions should take account of the existence of multiple jurisdictions and parties’ ability to choose the jurisdiction whose law controls their transactions.

Third, we suggest harnessing the power of jurisdictional competition among the states through a federal law enforcing contracting parties’ choice of law except to the extent states legislatively override the choice of law and regulate local transactions. We apply this analysis to several areas of the law that are critical to growth and innovation: non-competition clauses, business associations, the legal profession, internet law, insurance, property law, products liability, and franchise regulation.