The prisoner’s dilemma is a simple and famous illustration of a problem that’s very common. One of the areas in which it is common is the arms race where two parties competing with each other each invest to outdo the other. This is visible in lots of situations. In some areas of patent law it’s pretty obvious that there’s a net social loss – I’m thinking for instance of software patents where virtually all inventions that get patented would have come into existence without the patent and yet patents are acquired by rent seeking ‘patent trolls’, or firms that not surprisingly are happy to take the windfall of a monopoly over an invention they would have come up with in any event and if you’re in the industry and you’re not one of those firms, then you have to patent to prevent one of the patent trolls coming after you and getting you to pay them protection money.
In other industries the case regarding patents, especially those that require heavy investment to bring things to market and the innovation thus generated is easy to immitate, things aren’t so clear cut. Though there remains an incentive to overinvest in such things (for instance for defensive purposes) the regime may generate more benefits than costs and the relevant policy question is how it can be optimally calibrated.
And the law generally is such a prisoner’s dilemma with results as confirmed in this study.
Do the parties in a typical dispute face incentives similar to those in the classic prisoner’s dilemma game? In this paper, we explore whether the costs and benefits of legal representation are such that each party seeks legal representation in the hope of exploiting the other party, while knowing full well that failing to do so will open up the possibility of being exploited. The paper first shows how it is possible to test for the presence of such an incentive structure in a typical dispute resolution system. It then reports estimates of the incentives for the parties to obtain legal representation in wage disputes that were settled by final-offer arbitration in New Jersey. The paper also reports briefly on similar studies of data from discharge grievances, court-annexed disputes in Pittsburgh, and child custody disputes in California. In each case, the data provide evidence that the parties face strong individual incentives to obtain legal representation which makes the parties jointly worse off. Using our New Jersey data, we find that expert agents may well have played a productive role in moderating the biases of their clients, but only early on in the history of the system. Over time, the parties slowly evolved to a non-cooperative equilibrium where the use of lawyers becomes nearly universal, despite the fact that agreeing not to hire lawyers is cheaper and does not appear to alter arbitration outcomes.
What can be done about this? Well one can ban legal representation, as happens in some small tribunals. But that can be very unfair to those with the least idea of what’s going on. They may find it prejudicially hard to put their case.
Perhaps you could also constrain the degree of legal representation. What I’ve always thought is extremely unfair is the ability to give those in a case a very wide berth to double down on their own (but significantly also their opponents) costs and risks, not just by failing to cooperate in various ways but also by appealing and appealing as far as one can go. And preferably letting it be known in advance that one will do so.
One of the things this exploits is the law’s assertion that procedural equality is substantive equality. But that’s poppycock as a moment’s reflection reveals. Other things being equal the wealthy and the poor can bear very different levels of legal risk. When I was on the Cutler Review this is what was proposed (pdf):
It is important that legal procedure more fully internalise the principle that legal costs should be proportionate to the amounts at issue in specific legal disputes. . . .
[T]here is a long history of modest outcomes from reviews of legal procedure. It is to be hoped that at least in some specialised areas more radical experiments might be tried, for instance stronger steps towards the level of case management typical of some of Europe’s more
efficient civil law systems. It would be very much in keeping with the spirit of innovation if some experiments of this kind could be undertaken in the area of IP litigation.
In the meantime there is a simple procedural rule that could be introduced into intellectual property litigation that would ‘level the playing field’ somewhat between large and small firms and so lead to a fairer and more efficient IP system. A right to opt out of ‘appellate double jeopardy’ would give each party to a dispute the right to elect not to appeal the finding of the court of first instance, except where the appellant funded the costs of both itself and its opponent. Wherever either side had exercised
such a right, both parties would be bound by it; that is neither party could appeal the decision of the court of first instance without meeting all their opponents’ costs.
Recommendation 7.4: Firms asserting or defending intellectual property should have a right to opt out of ‘appellate double jeopardy’.
It was so far outside the Overton Window that it sank without trace. It’s a classic example of the kind of thing that could be relatively easily done, but hey, it’s not something that the chattering classes are chattering about so if it’s mentioned in polite company people will rapidly tell you that “it could never be done” which is of course as complete a demonstration as one could ever want of why it should not be done, or even spoken about.
But I thought of it again as I read the abstract of the article again quoted above.