Research Handbooks in Law and Economics series
Edited by Thomas J. Miceli and Matthew J. Baker
Chapter 9: The optimal amount of distorted testimony when the arbiter can and cannot commit
How much testimony should an arbiter require when he knows that the parties to the conflict spend considerable resources to misrepresent evidence in their favor? When he hears no witnesses, no resources are wasted on fabricating evidence, yet the judgeís adjudication will be erroneous, leading to a social loss from inaccurate decisions. If parties testify, the decision will be more accurate, yet resources are wasted on fabricating evidence. Requiring, for example, testimony from two parties rather than one will lead to a duplication of the costs to produce misleading information. The purpose of this chapter is to analyze this trade-off between procedural costs and the benefits of truth-finding. An arbiter has to decide on an issue which we take to be a real number; for example, the adjudicated value is the damages that one party owes to the other. The defendant wants the damages to be small whereas the plaintiff wants them to be large. The parties thus have conflicting interests. The arbiter can decide the case solely on the basis of his priors. Alternatively, he can ask for further evidence from the two parties to the conflict. Both parties know the actual realization of the damages. Presenting evidence involves a fixed cost. Moreover, they can boost the evidence in either direction. Distorting the evidence is, however, costly.
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