From Economic to Legal Competition

From Economic to Legal Competition

New Perspectives on Law and Institutions in Europe

New Horizons in Law and Economics series

Edited by Alain Marciano and Jean-Michel Josselin

The idea of legal competition as a decentralized market process of law provision in which legal clubs compete, has earned an indisputable legitimacy among economists. This book presents a debate concerning the merits of and conditions for a competitive provision of law, with a special focus on institutions in Europe.

Chapter 6: Harmonization of judicial interest payments and litigation in a federalist state

Manuela Mühl and Lode Vereeck

Subjects: economics and finance, public finance, law - academic, european law

Extract

Manuela Mühl and Lode Vereeck INTRODUCTION Justice is not served unless it is rendered swiftly. Delay is therefore a problem that clearly undermines the functioning of the court system and may even threaten its very existence. In a recent article,162 an extended Shavellian (1982) model clearly demonstrated how court delay negatively affects social welfare. Court delay is not only unjust and unlawful,163 it is also inefficient. Since Gravelle (1990) observed that the time-elasticities of the demand for trials from plaintiffs and defendants are negatively correlated, conventional supply-side policies to reduce delay are considered inadequate. Rationing trials by court fees is then the only alternative left. Judicial interest payments are meant to compensate litigants for waiting and the depreciation of their stakes. But what is the impact of such awards on the level of litigation? With the European Community came free intra-European trade and movement of persons, yet also more conflicts between parties of different nationalities. If a federalist constitution permits mobility of litigants, post-conflict resolution opportunities might be described in terms of Tiebout competition between different court systems. This appears to be the case since litigants have some freedom in choosing the place of court (e.g. the residence of the plaintiff or defendant or the place of accident or failed transaction). Unintended competition between national court systems will be the result and can take many forms. Timely resolution of conflicts is an attractive, yet self-destructing competitive factor. Since judicial interest payments have the same effect as shortening...

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