CHAPTER 4B
Legal Complexity - What is it For ?
Is complexity of law a scheme by lawyers to limit competition? Is this a method of rent-seeking ?
White (1988) & (1992) wrote on the desired level of complexity of the law between litigating lawyers. The layman is frequently lost when the technicalities are raised which seem to be omni-present in every legal situation. The layman would prefer simplicity, I would think.
The Social Value of increasing complexity is a reduction in the probability of judicial error due to extra information which guides the court to a correct outcome (ruling) . There is economic efficiency reflected in higher complexity if it leads to more incentive to litigate due to a higher probability of a consistent equitable outcome (ruling). When higher complexity results in a higher error rate by the court, allowing the guilty to escape, efficiency is thwarted by complexity. The socially efficient level of complexity is 0 in these cases, but lawyers want a higher level of complexity.
Diminishing social returns call for simplicity long before the diminishing private returns, which are lower to begin with. Private lawyers fees (private cost) are less than the total cost of court. Additional social costs are paid in many different ways; salaries to court employees and judges; lost productivity of witnesses, jurors and litigants; and additional externalities of many sorts.
Simple cases have low total lawyer income. Lawyers like complexity levels which 1) just reassure them that they should prevail at trial; and 2) maximize their total income. More complex laws require a lawyer to interpret for the perplexed layman, even when litigation is only one long term possible outcome of the uncertainty of complexity.
Certain procedural statutes are known as rules. Some apply to your life when you have no conflicts to resolve in court, and some are for trials. The purpose of the rules of court (which often seem like arbitrary technicalities) is to ensure fairness for each side of the controversy.
The complexity of the rules and that of the law has evolved over time, hopefully into a rule of law which seems to work to efficiency.
Parties go to trial only when the parties have a divergent estimate of the expected trial outcome. Identical expectations of the outcome does not lead to trial, because one side can be assured in advance of losing.
The inefficient rule of law encourages test after test (case after case) , to change the rule into a ruling of efficiency, because it places a high-cost on the litigant with more at stake, who then becomes willing to spend more to fight. The litigant who has a low stake in the outcome but who is inefficiently given an undeserved victory will not spend much to fight because his gain (stake) in victory is low. Therefore the efficient rule of law reduces litigation, and brings expectations closer together for both litigants. (Landes & Posner 1979)
As far a preferences by lawyers for complexity or simplicity differing in the same case from plaintiff's side or from defendant's side, each side would prefer the level of simplicity or complexity which would give them the advantage. However every case type must be tried under one rule, and one rule only.
Complexity leads to higher fees. Some complexity is desirable, but very complex is not desirable, because very complex means very high fees, which would encourage settlement.
Optimism leads to litigation. Based on the assumptions that lawyers only get paid when litigation occurs, including at a minimum, a case filed and a response filed before a settlement may be reached, lawyers have an interest in having a complexity level just complex enough to ensure adequate payment.
All cases are either rule of law (simple) , or requiring facts to be determined (more complex), leading to researched (very complex) law which is then shown to be applicable from the facts found.
Higher complexity frequently works for the plaintiff, as the defendant has more ways to be "incorrect". Thus the defendant counsel wants a level of complexity that just encourages litigation, without making defendants probability of success too low to justify litigation risk.
Higher awards encourage complexity, because higher stakes encourage litigation, and discourage settlement. Risk-averse clients desire settlement. Risk-aversion thus discourages complexity so as to just avoid the settlement threshold, and follow through into litigation.
Litigation becomes less expensive when the legal fee prior to settlement is a fixed (a sunk cost) cost already spent. The additional cost to actually litigate for the possible award becomes lower and litigation is encouraged in these circumstances, which raises the total of both lawyer's income.
Tullock (1980) wrote that there is a direct connection between the expenditure by a litigant on his legal counsel, and his probability of winning the case. Tullock wrote that this represents rent-seeking, and encourages each party to "gamble" a higher portion of the potential winnings. Chan-Young Lee (1997) concurs.