Rent seeking and judicial bias in weak legal systems

RESEARCH PAPER NUMBER 925, ISSN 0819-2642, ISBN 0 7340 2581 5We model rent seeking in litigation in weak legal systems as a Tullochcontest in which litigators may seek to influence the court directly throughbribery as well as through the merit of the legal case that they bring. Ifthe local firm has a competitive advantage in influencing the court thenthere is a strategic asymmetry between the players: the local firm regardsexpenditure by the foreign firm as a strategic complement, but the for-eign firm regards local expenditure as a strategic substitute. This leads todifferent attitudes to commitment: the local firm would like to commit toa high level of effort to influence the court, the foreign firm to a low one.There is also an asymmetry in the commitment technology. It is not easyto commit to a low level of bribery, but it is feasible to commit to a highone: once a payment is made it cannot easily be recovered. We modelthe interaction as a two stage game: the players simultaneously committo a minimum level of effort, then they play a simultaneous Tulloch influ-ence game. We find a continuum of equilibria. An equilibrium selectionargument selects a unique equilibrium that is outcome equivalent to theStackelberg equilibrium of a simple Tulloch contest in which the local firmmoves first. We thus find an argument for endogenous timing: the localfirm moves first and secures a first mover advantage