Rent Seeking and Bias in Appeals Systems

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We analyze a litigation contest in which plaintiff and defendant seek to win in trial court, and the losing litigant may appeal. In our setup, the appeals court’s judgment depends on the trial court’s judgment, the merits of the litigants’ arguments, and their efforts in the appeals stage. We find that the possibility of appeal increases the favorite’s probability of winning as compared to that in a single-stage system, as the favorite has greater incentives to exert effort in the first-instance authority than the underdog. Moreover, we show that the possibility of appeal may increase total rent-seeking efforts and make the case less likely to be tried, or that it surprisingly may have the opposite effects, and how the direction of these effects depends on the model’s parameters.

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