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A New Theory Concerning the Credibility and Success of Threats to Sue

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  • Bebchuk, Lucian Arye

Abstract

Negative-expected-value (NEV) suits are ones in which the expected litigation costs exceed the expected judgment. This article offers a new theory for the credibility and success of plaintiffs with NEV suits. The theory is based on recognizing that litigation costs are generally not incurred all at once but rather over time; this divisibility of the litigation process is shown to play a crucial strategic role. The analysis identifies the conditions under which a plaintiff with an NEV suit will have a credible threat and succeed in extracting a settlement. It is demonstrated that plaintiffs have credible threats in a much wider set of cases--including in numerous small-stakes cases--than has been suggested by prior economic analysis of the subject. Copyright 1996 by the University of Chicago.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Legal Studies.

Volume (Year): 25 (1996)
Issue (Month): 1 (January)
Pages: 1-25

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Handle: RePEc:ucp:jlstud:v:25:y:1996:i:1:p:1-25

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Web page: http://www.journals.uchicago.edu/JLS/

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Cited by:
  1. Jack Hirshleifer & Evan Osborne, 1999. "Truth and the Legal Battle," UCLA Economics Working Papers 790, UCLA Department of Economics.
  2. Giuseppe Dari-Mattiacci & Bruno Deffains, 2006. "Uncertainty of Law and the Legal Process," Working Papers of BETA 2006-11, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  3. Kirstein, Roland & Rickman, Neil, 2002. ""Third Party Contingency" contracts in settlement and litigation," Berkeley Olin Program in Law & Economics, Working Paper Series qt6vn9877z, Berkeley Olin Program in Law & Economics.
  4. Guiseppe Dari-Mattiacci & Bruno Deffains, 2006. "Uncertainty of Law and the Legal Process," Tinbergen Institute Discussion Papers 06-071/1, Tinbergen Institute.
  5. Jeong-Yoo Kim, 2010. "Credible plea bargaining," European Journal of Law and Economics, Springer, vol. 29(3), pages 279-293, June.
  6. Farmer, Amy & Pecorino, Paul, 1998. "A reputation for being a nuisance: frivolous lawsuits and fee shifting in a repeated play game," International Review of Law and Economics, Elsevier, vol. 18(2), pages 147-157, June.
  7. Chris Kuo, 2014. "An Economic Analysis on Overbilling Incentives and Auditing Programs," Journal of Business Ethics, Springer, vol. 121(3), pages 441-449, May.
  8. Spier, Kathryn E. & Sykes, Alan O., 1998. "Capital structure, priority rules, and the settlement of civil claims," International Review of Law and Economics, Elsevier, vol. 18(2), pages 187-200, June.
  9. Miceli, Thomas J., 1999. "Settlement delay as a sorting device," International Review of Law and Economics, Elsevier, vol. 19(2), pages 265-274, June.
  10. Klement, Alon, 2003. "Threats to sue and cost divisibility under asymmetric information," International Review of Law and Economics, Elsevier, vol. 23(3), pages 261-272, September.
  11. Mnookin, Robert & Wilson, Robert, 1998. "A Model of Efficient Discovery," Games and Economic Behavior, Elsevier, vol. 25(2), pages 219-250, November.
  12. Lucian Arye Bebchuk, 1998. "Negative Expected Value Suits," NBER Working Papers 6474, National Bureau of Economic Research, Inc.
  13. Kirstein, Roland & Rickman, Neil, 2001. "FORIS contracts: Litigation Cost Shifting and Contingent Fees in Germany," CSLE Discussion Paper Series 2001-04, Saarland University, CSLE - Center for the Study of Law and Economics.

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