Theory of Adjudication

Abstract This chapter presents the economic theory of adjudication. Courts sit at the heart of public law, and economists have analyzed many aspects of the judicial process. The chapter starts with the positive theory of adjudication, examining how litigants determine the value of their claims and whether they settle or litigate. It discusses trials and appeals, and it relates these processes to economic tools like Bayesian updating and the Condorcet Jury Theorem. Then the chapter turns to judicial behavior. It addresses the legal, attitudinal, and strategic models of judging. Turning to normative theory, the chapter analyzes the trade-off between accuracy in adjudication and the costs of fact-finding and interpretation. Finally, it presents a guide for legal interpretation called the “incentive principle.” According to this principle, a law’s correct interpretation creates incentives that best fulfill its purpose.