Path Dependence and Interconnected Institutions: Implications for Legal Transplantation

Abstract

This article has used the path dependence approach to examine the functioning of the institution of derivative action in the United States first. The analyses show that the functioning of the institution of derivative action in the United States depends upon a series of closely related interconnected institutions. These interconnected institutions include the common fund principle, the contingency fee arrangements, and liberal discovery rules. The article then starts to analyze whether similar interconnected institutions are available when Japan and South Korea started to transplant the institution of derivative action from the United States. If the interconnected institutions were not available when the institution of derivative action was first introduced, does the lack of interconnected institutions explain the variation in the utilization levels of the institution of derivative action? The article has further paid attention to other obstacles in the borrowing countries which tend to reduce the utility of the institution of derivative action. Furthermore, the article has examined the response to legal reforms of removing or reducing these obstacles in the borrowing countries. Evidence in Japan and South Korea positively supports the path dependence approach.