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

Deffains Bruno and Roussey Ludivine
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Deffains Bruno: Ermes, CNRS and University of Paris II Pantheon-Assas
Roussey Ludivine: EconomiX, CNRS and University of Paris Ouest Nanterre-La Defense

Review of Law & Economics, 2011, vol. 7, issue 1, 243-263

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.

Date: 2011
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DOI: 10.2202/1555-5879.1465

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