Unclogging Courts by Targeting Litigant Incentives: The Case of the Brazilian Labour Justice Reform

Overburdened courts hinder economic and social progress, yet successful court reforms are rare. Instead of boosting judicial resources or adapting procedure, Brazil tackled persistent backlogs and delays in its labour courts by replacing the pre-existing each-pays-their-own-costs (American) rule for allocation of litigation expenses with an alternative loser-pays-all (English) rule. Using a newly assembled court-level panel dataset and difference-in-differences approach, we show that the reform alleviated the courts' demand pressures and, most importantly, increased court efficacy in both adjudication and enforcement. The Brazilian experience offers valuable policy lessons about viable court reforms for other jurisdictions.