The Effects of Liberalization on Litigation: Notes toward a Theory in the Context of Japan

Abstract

This Essay examines the under-studied relationship between liberalization and litigation. Liberalization should lead to expanded civil litigation for four reasons: (1) new market entrants are less subject to informal sanctions and may have a greater propensity to go to court; (2) privatization transfers resources away from the state, expanding the number of transactions subject to civil law regimes; (3) liberalization reduces the government’s ability to resolve disputes outside the courts; and (4) liberalization leads to economic development, which is generally litigation-enhancing. We test these propositions using a unique dataset of prefecture-level civil litigation data in Japan during the 1990s. Using panel data, we find a small but significant effect of foreign firms on litigation.