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

Innovation and Economic Growth

Article Snapshot


Henry Butler and Larry Ribstein


Rules for Growth: Promoting Innovation and Growth Through Legal Reform, pp. 467-486, 2011 (Presented by the Kauffman Task Force on Law, Innovation, and Growth)


This chapter explains how efficient growth policies can be discovered using “markets” for legal processes.

Policy Relevance

Efficient policies can be discovered by permitting parties to a contract to choose the state in which their contract applies, within some limits.

Main Points

  • The manner in which laws are made is at least as important in the long term as the content of the laws that are passed.
  • Innovation depends on a well-designed legal environment, but it is not always obvious when laws are being chosen which laws are best for encouraging innovation.
  • People and firms signing contracts in the US can sometimes explicitly choose, in advance, the state in which legal disputes stemming from the contract will be arbitrated. This is called jurisdictional choice or choice of law.
  • A federal rule enforcing contractual parties’ choice of law, except to the extent that states override this jurisdictional choice, would permit firms and people to do business under the regulations best-suited to growth while preserving the ability of states to maintain regulatory flexibility.
  • Jurisdictional choice would promote, or has already enabled, efficient policy discovery in many specific areas, including non-competition clauses; legal corporations; insurance companies; product liability; franchise regulation; and business associations.


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