Question

Suppose that two people choose to litigate a dispute. Should the law presume that if two parties are prepared to litigate, transaction costs must be high, and therefore the court should choose damages as the remedy, not an injunction?

Answer 1

The law should not presume high transaction costs solely based on the decision to litigate. The complexity of determining remedies in legal disputes often involves transaction costs, conformity costs, and the importance of property rights as per the Coase Theorem. Litigation may be chosen for various reasons, including the significance of the dispute or the lack of clearly defined property rights.

Step-by-step explanation:

The question asks whether the law should presume high transaction costs if two parties decide to litigate a dispute and therefore opt for damages rather than an injunction as a remedy. In civil litigation, transaction costs can include legal fees, time spent, and other expenses related to bringing a case to court. These costs often discourage parties from litigating over trivial matters.

The decision to seek a jury trial or a bench trial can also influence the transaction costs and the potential for conformity costs, which refer to the cost of complying with a decision that one disagrees with. The Coase Theorem, brought up by the student, emphasizes the importance of clearly defined property rights to reduce transaction costs and increase efficiency in resolving disputes.

If property rights are well-defined and protected, parties have an incentive to negotiate and settle disputes in a cost-effective manner, rather than litigating.