Double-sided Moral Hazard in Judicial Institutions

Abstract: We develop a double-sided moral hazard model to tackle organizational issues in judicial institutions. Modelling production of justice with a double-sided moral hazard model corresponds well with the idea that court services are achieved by combining two inputs: jurisdictional tasks and administrative tasks. Jurisdictional tasks are typically performed by magistrates. Administrative tasks are expected to be conducted by the government through the provision of judicial assistants or information technology. In reality, magistrates also perform administrative tasks. Our model contributes to existing literature on double-sided moral hazard by studying a case where the agent (here a representative magistrate) may substitute his own effort for that of the principal (the government) to undertake some of the tasks a priori allocated to the principal (administrative tasks). Our main finding is that two sources of inefficiency in the production of justice are possible according to the relative unit cost of administrative tasks for the two co-providers. The first source of inefficiency is due to sharing the incentives to make each co-provider exert an effort, and the second corresponds to a misallocation of administrative tasks when the representative magistrate takes in charge the whole production of judicial services.