Rent-Seeking and Litigation: The Hidden Virtues of the Loser-Pays Rule
University of Bologna - Department of Economics
University of Minnesota - Law School; University of Bologna
September 9, 2012
Minnesota Legal Studies Research Paper No. 12-39
In the past couple of decades, scholars have predominantly employed rent-seeking models to analyze litigation problems. In this paper, we build on the existing literature to show how alternative fee-shifting arrangements (i.e., the American rule and modified English rule) affect parties' litigation expenditures and their decisions to litigate. Contrary to the prevailing opinion, we discover some interrelated advantages of the English rule over the American rule, including the reduction of litigation rates and reduction of expected litigation expenditures. Our results unveil a hidden virtue of the English rule, showing that an increase in fee-shifting may have the effect of reducing total litigation costs and lead to a desirable sorting of socially valuable litigation.
Number of Pages in PDF File: 19
Keywords: litigation, fee shifting, rent-seeking, English rule, American rule
JEL Classification: C72, D72, K41working papers series
Date posted: September 11, 2012
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