Information Costs and the Civil Justice System

Abstract

Litigation is costly because information is not free. Given that information is costly and perfect information prohibitively costly, courts will occasionally err. Finally, the fact that information is costly implies an unavoidable degree of informational asymmetry between disputants. This paper presents a model of the civil justice system that incorporates these features of the real world and probes its implications for compliance with the law, efficiency of law, accuracy in adjudication, trial outcome statistics, and the evolution of legal standards. The model’s claims are applied to and tested against the relevant empirical and legal literature.

Keywords: optimal deterrence, efficiency of law, trial win rates, trial selection, legal evolution, litigation costs, legal compliance, judicial error, incentive to appeal

JEL Classification: D74, K10, K13, K41