Litigation and the Product Rule: A Rent Seeking Approach

Abstract

This paper examines the suppression of the product rule in litigation from a rent seeking perspective. We show that there are some important arguments in favor of not applying it. First, the expected judgment is always lower when the product rule is used, especially for relatively strong cases. Second, litigation expenditures are often larger when the product rule is used, again especially for relatively strong cases. Both of these factors decrease the plaintiff’s expected value for such cases. Third, when the product rule is suppressed, the plaintiff files all cases that he or she should win. This is not so when the product rule is applied. Fourth, for many of the weakest cases (the ones in which the quality of all issues is rather weak), the expected value of the plaintiff’s case is larger when the product rule is used. The main argument in favor of the application of the product rule is that when the rule is suppressed, plaintiffs file more cases in which the quality of one issue is weak and the quality of the other issue is strong. However, the influence of this factor on the ex ante incentives of the injurer is relatively small.