Rent-Seeking and Litigation: The Hidden Virtues of the Loser-Pays Rule
19 Pages Posted: 11 Sep 2012
Date Written: September 9, 2012
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.
Keywords: litigation, fee shifting, rent-seeking, English rule, American rule
JEL Classification: C72, D72, K41
Suggested Citation: Suggested Citation