The Multiplier Effect of Public Expenditure on Justice: The Case of Rental Litigation

Bruno Deffains and Ludivine Roussey
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Bruno Deffains: University of Paris 2 Panthéon Assas, Ermes-CNRS
Ludivine Roussey: University of Paris Ouest Nanterre La Défense, EconomiX-CNRS

Review of Law & Economics, 2011, vol. 7, issue 1, pages 11

Abstract:

When courts are congested, the risk associated with facing a defaulting tenant is high for landlords. They tend to compensate for this risk by increasing rents to include a “risk premium.†This has the effect of making the probability of defaulting increase, as well as further overloading the courts. Using a simple model we show in this paper how a better equilibrium can be reached when the resources of the judiciary are slightly increased. Our explanation is that a rise in public legal resources not only allows courts to produce more decisions (direct effect), but also reduces the number of cases coming in by giving landlords an incentive to charge lower rents (indirect effect). The synergy of the two effects creates a multiplier of public expenditure on justice.

Keywords: legal system; rental housing; multiplier effect (search for similar items in EconPapers)
JEL-codes: K4 R31 D01 D63 (search for similar items in EconPapers)
Date: 2011
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