ACCESS TO JUSTICE AND LITIGATION TRADE-OFF: A Theoretical Analysis ACCESS TO JUSTICE AND LITIGATION TRADE-OFF: A Theoretical Analysis Margherita Saraceno ACLE, Seminar on Access to Justice April 18, 2008 Margherita Saraceno April 18, 2008 ACLE Seminar on Access to Justice
What’s the problem? (1) ACCESS TO JUSTICE AND LITIGATION TRADE-OFF: A Theoretical Analysis • A2J denial for people who need legal remedies is a crucial problem of development and social efficiency. (UNDP, 2004, and 2002; World Bank, 2006, and 2006b. On A2J movement and related problems, see also Shavell, 1999a); Sinnar, 2002; Sommerland, 2004; Mattei, 2006; Stratto 2007; Varano and De Luca, 2007). New contributions on A2J from an applied law and economics perspective see Barendrecht, Mulder and Giesen (2006)) • Parties of a dispute are directly affected by the events which determine it and they are interested in the dispute resolution (relief and sense of justice). (Cappelletti and Garth, 1979; Hirshleifer, 2001) • Disputes and their resolutions are not only a private problem, but also a social one. (negative externalities undeterrence, disorders, and violence). (UNDP, 2004. On negative externalities see also Posner,1973; Shavell,1999°, 1997, and1982b; Cooter and Rubinfeld,1989) Margherita Saraceno April 18, 2008 ACLE Seminar on Access to Justice
What’s the problem? (2) ACCESS TO JUSTICE AND LITIGATION TRADE-OFF: A Theoretical Analysis • When A2J in guaranteed, disputes can be resolved by legal “private” systems (settlement), or by public systems (litigation). (Landes, 1971; Gould, 1973; Posner, 1973; Shavell, 1982a, 1995, and 1999b; P’ng, 1983; Reinganum and Wilde, 1986; Mnookin, 1993; Hay and Spier, 1998; Lederman, 1999; Spier, 2003; Dari-Mattiacci, 2007b) • Excessive litigation and consequent courts’ workloads are emerging as further problems. (Silver, 2002; Djankov, La Porta, Lopez-de-Silans and Shleifer; 2003; Cohen and Smith, 2004; Fix-Fierro, 2004; Taruffo, 2005; CEPEJ, 2006). • Despite evident interconnections between access to justice and excessive litigation, however, the law and economics literature usually analyzes these two problems separately. (Silver, 2002) Thus, the question is to analyze the potential social trade-off between increasing access to justice and reducing litigation. Margherita Saraceno April 18, 2008 ACLE Seminar on Access to Justice
The Methodolgy ACCESS TO JUSTICE AND LITIGATION TRADE-OFF: A Theoretical Analysis The paper presents a simple model of disputes resolution problem from a macro-perspective (social planner’s problem), and from a micro-perspective (parties’choice). Furthermore, it analyzes the effects of a number of policies on: a) the victim’s access to justice, b) the parties’ choice between settlement and litigation, c) social costs of disputes resolution. The paper: - extends the existing literature by showing that reducing litigation rate is not always socially efficient ( social trade-off exists between curbing litigation and enhancing access to justice ). - derives policy implications for access to justice and judicial economy. Margherita Saraceno April 18, 2008 ACLE Seminar on Access to Justice
The Model (1) ACCESS TO JUSTICE AND LITIGATION TRADE-OFF: A Theoretical Analysis From a macro-perspective Disputes can be legally solved by PDR (litigation), or by ADR (settlement). Otherwise disputes are solved by VDR . • PDR is costly for society. Every dispute solved by PDR has a constant social cost K PDR financed by taxpayers. • Alternatively, disputes can be solved by ADR . This system of disputes resolution is assumed not to be costly for society. • If disputes are solved by VDR (this case includes unsolved claims), society bears the social cost of this solution. Every dispute solved by VDR has a constant social cost ≥ K PDR . K VDR Margherita Saraceno April 18, 2008 ACLE Seminar on Access to Justice
The Model (2) ACCESS TO JUSTICE AND LITIGATION TRADE-OFF: A Theoretical Analysis From a macro-perspective The Social Planner’s problem: to minimize social costs of disputes resolution ( ∑ ) How do the parties decide to solve their disputes? Margherita Saraceno April 18, 2008 ACLE Seminar on Access to Justice
The Model (3) ACCESS TO JUSTICE AND LITIGATION TRADE-OFF: A Theoretical Analysis From a micro-perspective • Parties are rational and risk neutral, have subjective beliefs on the litigation outcome because of the uncertainty of the case. Beliefs of parties on victim’s success at trial ( q V and q I ) are assumed to become common knowledge once dispute has arisen. • The magnitude ( D > 0) of the harm is perfectly verifiable by the judge. In a judgement in favour of the victim, the judge awards a damage compensation equal to the suffered damage. • “American rule”: every party in case of litigation bears his/her own litigation cost ( C V and C I ). • Parties can settle the case and thereby save on litigation costs (settlement costs are normalized to zero) •If the dispute is resolved by VDR , it simply remains unresolved (payoff of VDR is zero for both parties). Margherita Saraceno April 18, 2008 ACLE Seminar on Access to Justice
The Model (4) ACCESS TO JUSTICE AND LITIGATION TRADE-OFF: A Theoretical Analysis From a micro-perspective The parties’ choice (without victims’ budget constraint) Margherita Saraceno April 18, 2008 ACLE Seminar on Access to Justice
The Model (5): ACCESS TO JUSTICE AND LITIGATION TRADE-OFF: A Theoretical Analysis From a micro-perspective Introducing a budget constraint only for victims (injurers are assumed to be always solvent), the necessary condition of nonnegative expected litigation outcome is not enough to guarantee access to justice. An additional condition must hold: victim's wealth must be sufficient to cover litigation cost ( w>C V ). The parties’ choice (under victims’ budget constraint) Margherita Saraceno April 18, 2008 ACLE Seminar on Access to Justice
The Model (6): ACCESS TO JUSTICE AND LITIGATION TRADE-OFF: A Theoretical Analysis Move back to the social planner problem of costs minimization: Expected social costs of disputes resolution can be calculated as: Defining Defining Margherita Saraceno April 18, 2008 ACLE Seminar on Access to Justice
Results (1): ACCESS TO JUSTICE AND LITIGATION TRADE-OFF: A Theoretical Analysis A2J , and Litigation vs Settlement from a micro -perspective 1. A2J positively depends on the victim’s subjective probability of prevailing in litigation (optimism) and damage compensation. A2J negatively depends on the victim’s litigation cost and budget constraint. 2. Settlement negatively depends on the spread between the victim’s and injurer’s beliefs. Litigation costs and damage compensation have an ambiguous effect on settlement. 3. Litigation positively depends on the spread between the victim’s and injurer’s beliefs and on the damage redress. Litigation negatively depends on the parties’s litigation costs. Margherita Saraceno April 18, 2008 ACLE Seminar on Access to Justice
Results (2): ACCESS TO JUSTICE AND LITIGATION TRADE-OFF: A Theoretical Analysis From a macro-perspective: Social Costs of Disputes Resolution 4. For a given probability of A2J, reductions in the probability of litigation reduce expected social costs of disputes resolution. 5. An augmented probability of A2J can improve or reduce expected social costs of disputes resolution. When the improvement in the probability of A2J corresponds to an equivalent or a smaller improvement in the probability of litigation, expected social costs decrease. When an improvement in the probability of A2J corresponds to a greater improvement in the probability of litigation, expected social costs can decrease or increase. Margherita Saraceno April 18, 2008 ACLE Seminar on Access to Justice
Results (3): ACCESS TO JUSTICE AND LITIGATION TRADE-OFF: A Theoretical Analysis Policy Analysis Margherita Saraceno April 18, 2008 ACLE Seminar on Access to Justice
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