Rent-Seeking and Litigation: The Hidden Virtues of the Loser-Pays Rule

19 Pages Posted: 11 Sep 2012

See all articles by Emanuela Carbonara

Emanuela Carbonara

University of Bologna - Department of Economics

Francesco Parisi

University of Minnesota - Law School; University of Bologna

Date Written: September 9, 2012

Abstract

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

Carbonara, Emanuela and Parisi, Francesco, Rent-Seeking and Litigation: The Hidden Virtues of the Loser-Pays Rule (September 9, 2012). Minnesota Legal Studies Research Paper No. 12-39. Available at SSRN: https://ssrn.com/abstract=2144800 or http://dx.doi.org/10.2139/ssrn.2144800

Emanuela Carbonara

University of Bologna - Department of Economics ( email )

Piazza Scaravilli 2
Bologna, 40126
Italy
+39 051 2098149 (Phone)
+39 051 2098040 (Fax)

Francesco Parisi (Contact Author)

University of Minnesota - Law School ( email )

229 19th Avenue South
Minneapolis, MN 55455
United States

University of Bologna ( email )

Piazza Scaravilli 1
40126 Bologna, fc 47100
Italy

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