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.
Appendix
With the product rule, the equilibrium expenditures equal (proof on file with the authors):
Note that the limit cases (Fi=0 or Fi=1) lead to the results we should expect to find. For example, regarding the expenditures concerning the first issue, when F2=1, only the first issue should matter. When we set F2=1 in (12), we find that X1=Y1=F1(1–F1)J. When F2=0, the outcome of the case is certain (the defendant will win), and it’s no use investing in the first issue. Indeed, when we set F2=0 in (14), we find that X1=Y1=0.
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