The Economics of Courts and Litigation

The Economics of Courts and Litigation

New Horizons in Law and Economics series

Francisco Cabrillo and Sean Fitzpatrick

Dissatisfaction with the working of courts is ubiquitous. Legal inertia and maladministration are the norm in many countries and have significant social and economic repercussions. No longer a theme relegated to the peripheries of economic analysis, the administration of justice is now recognised by most economists as being of fundamental importance for economic development, a factor increasingly being acknowledged by policymakers at all levels. The departure point for this book is the authors’ belief in the need for a systematic analysis of the incentive structures facing key players in the courts and litigation process. They focus not only on structures pertaining to the common law tradition, but offer analysis of issues not normally found in the North-American literature, such as the Latin notary and the selection and values of judges in civil law systems. They further propose an ample list of considerations for a reform agenda.

Chapter 4: Litigants

Francisco Cabrillo and Sean Fitzpatrick

Extract

1. INTRODUCTION We all make an elevated number of contracts everyday. In the vast majority of cases, these contracts are realized in the manner envisaged by contracting parties, in the sense that one of the parties delivers the goods or services solicited according to the terms of the agreement and with the quality expected. In other cases, however, one party does not comply with that which was agreed, in terms of obligations, either partially or completely. These situations in the majority of cases are resolved by agreement between the parties. For instance, where a party supplies goods with a defect it may agree to substitute them for another without defect, or offer monetary or other compensation for the difference in quality. If a good was delivered late and a penalty clause was included in the contract for such cases, the issue may be resolved by reducing the sum the purchaser of these goods has to pay. If the buyer fails to pay the agreed sum by the agreed-upon date, he may return the merchandise to the seller. Cases where one of the parties does not comply with an agreement and refuses to compensate the other party are relatively few. A disgruntled individual has various options. First, he may do nothing. Indeed, in many economic transactions that fail to live up to our expectations, this is the solution we adopt. A meal of mediocre quality in a restaurant or a session at a cinema with poor sound will rarely lead to...

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