Working Paper No. 14-24:
Civil Procedure Reconsidered
Date Posted: June 2014
Abstract (below) | Full text (most recent) on SSRN
The economic analysis of civil procedure can be enriched by a more thorough consideration of the productive functions of civil adjudication. The previous literature has recognized that civil adjudication does have products–conventionally described as dispute resolution services, plus precedents for future cases–but otherwise has tended to treat civil litigation as a tax on productive activity, or, worse yet, as unproductive or counter-productive rent-seeking activity.
While all of those perspectives can have their uses in certain contexts, they are all incomplete, because none captures an essential function of civil litigation within the legal system, which is learning, meaning the production of new knowledge or information, and not merely the exchange or revelation of pre-existing knowledge or information. Adding this perspective profoundly changes the economic analysis of civil litigation, which cannot thereafter be treated merely as a zero-sum (or negative-sum) game of strategic posturing and bargaining.
A more thorough consideration of the information-production function of civil adjudication presents a difficult and daunting task, because it requires more searching consideration of an obvious fact that has been recognized but not fully developed in the previous literature, which is that procedural law and substantive law act as both complements and substitutes for one another. This means that a full economic analysis of procedural law necessarily must account for its interactions with the substantive law that is sought to be enforced, which is inherently a complex undertaking. That approach also cuts against the usual instincts of analysts in all fields, which is to carve up the subject of study into more easily digestible parts for examination.
Therefore, the primary objective of this paper is to show why it is essential to consider the substance-procedure interaction in order to arrive at useful results. The implications are profound, because the substance-procedure interaction exposes the information-production function that lies at the heart of the civil adjudicative process: because neither parties nor tribunals nor the legal system can “know” anything until the point of definitive adjudication, the adjudicative process itself functions creatively and productively, much like the price system in open markets. Moreover, as adjudication is a substitute for as well as a complement to substantive law (or ex ante contracting), decisions to defer (or not defer) information production into the adjudicative stage themselves are productive decisions of economic moment. Therefore, the tradeoff between ex ante investment (as through contractual provisions, rules of substantive law, or parties’ decisions regarding their primary conduct) and ex post investment in adjudicative fact-finding is in no sense neglectable in the economic analysis of procedural law, but rather may be the single most important question to be examined.
In developing that thesis, this paper draws upon the insights of the Austrian economists, most notably Mises and Hayek. However, this is not a special “Austrian” perspective only, but a completely general point: once it is recognized that civil litigation creates a product in the form of new knowledge, then decisions to invest in litigation (versus its alternatives) must be treated not merely as “rent-seeking,” but also as embodying some element of innovation, and thus are analogous to other investments in new knowledge, such as research and development, or exploration for natural resources. Because the incentives affecting such investment decisions necessarily will affect the supply and price of new knowledge, then the rules of civil adjudication, no less than those of any other legal regulatory structure, will affect welfare through their effects on the creation and production of new information through litigation, or its alternatives.