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Cost Shifting in Civil Litigation: A General Theory

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  • Ben Chen
  • José A. Rodrigues-Neto

Abstract

We model civil litigation as a contest between a plaintiff and a defendant. A success function describes the litigants’ respective posterior probabilities of success based on their simultaneously-chosen efforts and an exogenous prior reflecting their relative advantages. The present success function satisfies general assumptions which capture frequently-used functional forms. These assumptions represent natural intuitions regarding the properties of reasonable success functions, and enable the results arising from the present model to reach a great degree of generality. Another generalization is the use of an exogenous proportion to characterize a cost-shifting rule that allows the winner to recover that proportion of her litigation costs from the loser. There exists a unique Nash equilibrium with positive efforts. In equilibrium, more cost shifting makes the outcome of the case more predictable, but may increase the litigants’ collective expenditure and decrease their collective welfare.

Suggested Citation

  • Ben Chen & José A. Rodrigues-Neto, 2017. "Cost Shifting in Civil Litigation: A General Theory," ANU Working Papers in Economics and Econometrics 2017-651, Australian National University, College of Business and Economics, School of Economics.
    • Handle: RePEc:acb:cbeeco:2017-651
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    File URL: https://www.cbe.anu.edu.au/researchpapers/econ/wp651.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    cost shifting; legal predictability; litigation costs; legal accuracy; contest theory.;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process

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