Judicial Interest Rates: Strategic Considerations

Abstract The appropriate method for determining the judicial interest rate remains unsettled. This article contributes to the debate by presenting a model that accounts for the complexities of party incentives and strategic delays in litigation. Additionally, we provide a rational explanation for the widespread use of a party-independent interest rate in many jurisdictions. When a single judicial interest rate is applied uniformly to all litigants, the optimal rate for minimizing delays can be understood as the average market interest rate, provided that the discount rates of plaintiffs and defendants are independently and identically distributed according to a symmetric distribution.