T C A Srinivasa-Raghavan: Yet another Indian perversion

OKONOMOS/ The government does not care about the cost of appealing in court cases

A few years ago when the Supreme Court was trying to clear up its backlog of cases, an interesting fact emerged. In nearly 70 per cent of the cases, the government was a party to the dispute. This led many to wonder why the government always appealed.

It turned out that there is in force what amounts to a standing order, namely, that the government is not to give up until it has been defeated in the Supreme Court. It also turned out that the government won only about 20 per cent of the time. The corollary was clear: the government didn't care about the cost of appealing.

It is in this context that a recent paper* by Steven Shavell, an economist at the Harvard Law School, needs to be read. The paper is actually about the usefulness of systems that allow appeals, but it has other interesting implications for India.

Shavell argues that the very fact litigants can appeal should "" and does "" lead to better lower court judgements because "the appeals process constitutes a threat to adjudicators whose decisions would deviate too much from socially desirable ones."

The key element, he argues as befits an economist, is cost. If the cost of appealing is less than the benefits that could accrue from appealing, it is worth appealing. If the cost is more, it is not. The lower courts know this and do their best to give what you can call equilibrium judgements.

"The appeals process induces decisions to conform to socially desirable decisions, at least within the range governed by the cost of an appeal. Furthermore, the appeals process yields this benefit without absorbing resources, as the appeals process does not actually result in appeals."

In this way the appeals process raises social welfare "" except, of course, in India where because the cost of appealing doesn't matter to the government, it keeps appealing even when it has been shown that it loses over 80 per cent of the cases in appeal.

This sort of behaviour wrecks what Shavell has sought to prove, namely, that a legal system that allows the right to appeal is socially and economically the best. This is because according to him the threat of an appeal results in better judgements from lower courts and ought to, therefore, minimise the number of appeals.

He does, however, examine the case where "the possibility of granting discretion to appeals courts to decide whether or not to hear cases that have been appealed." In India the Supreme Court has the right to admit or reject an appeal.

"Giving appeals courts such discretion," says Shavell, "offers a potential social cost-saving advantage: a litigant may wish to make an appeal even though the social cost of an appeal outweighs the social benefit, so that refusal by the appeals court to consider an appeal may be socially beneficial." This sounds convoluted but is perfectly logical.

But there is another side to the coin. Such discretion reduces the threat of appeal "" the lower courts know that there is always a chance that an appeal against even a bad decision may not be admitted. This makes discretion socially costly.

Shavell discusses another issue that is of considerable interest in India. This is the appointment of judges to the Supreme Court whose beliefs and attitudes accurately reflect current social preferences "" or what Indira Gandhi called a committed judiciary.

He recognises that this "rests on the assumption that the appeals court would tend to right incorrect decisions. In other words, the appeals court embodies the social interest." But if an appeals court judge has the same preferences as the lower court judges, the point is negated.

Hence the attempt by governments, who claim to reflect the public will, to pack the courts. Or, as Shavell delicately puts it, "the problem of who guards the guardians is ameliorated in a number of ways. Society may invest special effort in selecting appeals court judges to ensure that their preferences are aligned with society's, or it may have appeals court judges decide in panels, and it may induce appeals court judges to write opinions explaining their decisions."

*The Appeals Process and Adjudicator Incentives, NBER Working Paper No. 10754, September 2004