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ACCESS TO JUSTICE AND LITIGATION TRADE-OFF: A Theoretical Analysis Margherita Saraceno April 18, 2008 ACLE Seminar on Access to Justice

ACCESS TO JUSTICE AND LITIGATION TRADE-OFF: A Theoretical Analysis Margherita Saraceno ACLE, Seminar on Access to Justice

April 18, 2008

What’s the problem? (1)

ACCESS TO JUSTICE AND LITIGATION TRADE-OFF: A Theoretical Analysis Margherita Saraceno April 18, 2008 ACLE Seminar on Access to Justice

• A2J denial

for people who need legal remedies is a crucial problem

• f 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

• n A2J from

an applied law and economics perspective see Barendrecht, Mulder and Giesen (2006))

• Parties
• f a dispute are directly

affected by the events which determine it and they are interested in the dispute resolution (relief and sense

• f justice).

(Cappelletti and Garth, 1979; Hirshleifer, 2001)

• Disputes

and their resolutions are not

• nly

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

• 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.

What’s the problem? (2)

ACCESS TO JUSTICE AND LITIGATION TRADE-OFF: A Theoretical Analysis

The Methodolgy

ACCESS TO JUSTICE AND LITIGATION TRADE-OFF: A Theoretical Analysis Margherita Saraceno April 18, 2008 ACLE Seminar on Access to Justice

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

• f a number
• f policies
• n:

a) the victim’s access to justice, b) the parties’ choice between settlement and litigation, c) social costs

• f 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

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 KPDR 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

• f this
• solution. Every

dispute solved by VDR has a constant social cost KVDR ≥KPDR . The Model (1)

ACCESS TO JUSTICE AND LITIGATION TRADE-OFF: A Theoretical Analysis

Margherita Saraceno April 18, 2008 ACLE Seminar on Access to Justice

The Social Planner’s problem: to minimize social costs

• f disputes

resolution

(∑)

How do the parties decide to solve their disputes?

From a macro-perspective

The Model (2)

ACCESS TO JUSTICE AND LITIGATION TRADE-OFF: A Theoretical Analysis

Margherita Saraceno April 18, 2008 ACLE Seminar on Access to Justice

From a micro-perspective

• Parties

are rational and risk neutral, have subjective beliefs

• n the litigation
• utcome

because

• f the uncertainty
• f the case. Beliefs
• f parties
• n victim’s success at trial (qV

and qI ) are assumed to become common knowledge

• nce 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 (CV and CI ).

• 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

• f VDR is

zero for both parties). The Model (3) ACCESS

TO JUSTICE AND LITIGATION TRADE-OFF: A Theoretical Analysis

Margherita Saraceno April 18, 2008 ACLE Seminar on Access to Justice

The parties’ choice (without victims’ budget constraint) From a micro-perspective

The Model (4)

ACCESS TO JUSTICE AND LITIGATION TRADE-OFF: A Theoretical Analysis

Margherita Saraceno April 18, 2008 ACLE Seminar on Access to Justice

The parties’ choice (under victims’ budget constraint)

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 ).

From a micro-perspective

The Model (5):

ACCESS TO JUSTICE AND LITIGATION TRADE-OFF: A Theoretical Analysis

Margherita Saraceno April 18, 2008 ACLE Seminar on Access to Justice

Move back to the social planner problem of costs minimization:

Defining Defining

Expected social costs

• f disputes

resolution can be calculated as:

The Model (6):

ACCESS TO JUSTICE AND LITIGATION TRADE-OFF: A Theoretical Analysis

Results (1):

ACCESS TO JUSTICE AND LITIGATION TRADE-OFF: A Theoretical Analysis Margherita Saraceno April 18, 2008 ACLE Seminar on Access to Justice

A2J, and Litigation vs Settlement from a micro-perspective

1. A2J positively depends

• n the victim’s subjective

probability

• f prevailing

in litigation (optimism) and damage

• compensation. A2J

negatively depends

• n the

victim’s litigation cost and budget constraint. 2. Settlement negatively depends

• n the spread between

the victim’s and injurer’s beliefs. Litigation costs and damage compensation have an ambiguous effect

• n

settlement. 3. Litigation positively depends

• n the spread between

the victim’s and injurer’s beliefs and on the damage redress. Litigation negatively depends

• n the parties’s litigation

costs.

Margherita Saraceno April 18, 2008 ACLE Seminar on Access to Justice

From a macro-perspective: Social Costs of Disputes Resolution

4. For a given probability

• f A2J, reductions

in the probability

• f litigation

reduce expected social costs

• f disputes

resolution. 5. An augmented probability

• f

A2J can improve

• r reduce expected

social costs

• f

disputes

• resolution. When

the improvement in the probability

• f A2J

corresponds to an equivalent

• r a smaller

improvement in the probability

• f litigation, expected

social costs

• decrease. When

an improvement in the probability

• f A2J

corresponds to a greater improvement in the probability

• f litigation, expected

social costs can decrease

• r increase.

Results (2):

ACCESS TO JUSTICE AND LITIGATION TRADE-OFF: A Theoretical Analysis

Margherita Saraceno April 18, 2008 ACLE Seminar on Access to Justice

Policy Analysis

Results (3):

ACCESS TO JUSTICE AND LITIGATION TRADE-OFF: A Theoretical Analysis

Concluding remarks

ACCESS TO JUSTICE AND LITIGATION TRADE-OFF:

and future research

A Theoretical Analysis Margherita Saraceno April 18, 2008 ACLE Seminar on Access to Justice

The paper could be extended by simulations:

• parties’

beliefs distributed according to beta distributions (Dari-Mattiacci,2007a);

• wealth

could be modelled according to a Pareto. Simulations might clarify which effects prevail when trade-off between A2J and litigation exists. 1. The paper studies the problem

• f disputes

resolution from a macro-perspective and a micro-perspective. From a social perspective, often a trade-off exists between improving A2J and reducing litigation. 2. The paper provides a theoretical framework to analyze several policies and their effects on the probability

• f A2J, the probability
• f litigation, and finally, on consequent

social costs

• f

disputes resolution. Policies that shift the choice

• f people from

litigation to settlement while not affecting A2J allow savings in social costs. However, discouraging litigation while simultaneously reducing A2J can be socially detrimental. Enlargements in the probability

• f A2J

may benefit society when consequent enlargement in the probability

• f litigation

is not excessive.