Legal Bubbles. In Alain Marciano and Giovanni Ramello (eds), Encyclopedia of Law and Economics (2nd edition). New York London: Springer, 2022

Legal bubbles denote industry-wide investment debasement caused by overlooked instability of the legal foundations of innovative business models. The misplaced expectations of securing stable legal entitlements over essential factors of production generate an industry-wide collapse, once the value of investments is substantially decreased by the loss of courts’ protection as the keepers of the legal system. Akin to speculative financial bubbles, which stem from widespread over-optimistic views on price stability within an industry, legal bubbles emerge from over-optimistic views on the stability of legal entitlements over essential factors of production at the core of innovative transactions.