IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/9697.html
   My bibliography  Save this paper

Economic Analysis of Litigation and the Legal Process

Author

Listed:
  • Steven Shavell

Abstract

This paper contains the chapters on litigation and the legal process from a general, forthcoming book, Foundations of Economic Analysis of Law (Harvard University Press, 2003). In chapter 17, I consider the basic theory of litigation. Here I describe the three phases of litigation: its initiation through suit, the determination of whether the parties will settle their case or proceed to trial, and, if trial results, the trial expenditures. I also analyze the social desirability of their decisions, a major theme being that the private incentives to litigate may diverge from what is socially desirable. In chapter 18, I extend the basic theory of litigation, examining among other issues the bringing of negative value suits, shifting of legal fees to losers at trial, lawyer-client fee arrangements, and the influence of insurers on litigation. Then, in chapter 19, I discuss several general aspects of the legal process not considered in the basic theory and its extensions, including private systems of adjudication, the value of accuracy in adjudication, the appeals process, and the function of legal advice.

Suggested Citation

  • Steven Shavell, 2003. "Economic Analysis of Litigation and the Legal Process," NBER Working Papers 9697, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:9697
    Note: LE
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w9697.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Ramseyer, J Mark & Nakazato, Minoru, 1989. "The Rational Litigant: Settlement Amounts and Verdict Rates in Japan," The Journal of Legal Studies, University of Chicago Press, vol. 18(2), pages 263-290, June.
    2. Hause, John C, 1989. "Indemnity, Settlement, and Litigation, or I'll Be Suing You," The Journal of Legal Studies, University of Chicago Press, vol. 18(1), pages 157-179, January.
    3. Hay, Bruce L, 1994. "Civil Discovery: Its Effects and Optimal Scope," The Journal of Legal Studies, University of Chicago Press, vol. 23(1), pages 481-515, January.
    4. Osborne, Evan, 1999. "Who should be worried about asymmetric information in litigation?," International Review of Law and Economics, Elsevier, vol. 19(3), pages 399-409, September.
    5. Hughes, James W & Snyder, Edward A, 1995. "Litigation and Settlement under the English and American Rules: Theory and Evidence," Journal of Law and Economics, University of Chicago Press, vol. 38(1), pages 225-250, April.
    6. Bebchuk, Lucian Arye & Chang, Howard F, 1999. "The Effect of Offer-of-Settlement Rules on the Terms of Settlement," The Journal of Legal Studies, University of Chicago Press, vol. 28(2), pages 489-513, June.
    7. Eisenberg, Theodore, 1990. "Testing the Selection Effect: A New Theoretical Framework with Empirical Tests," The Journal of Legal Studies, University of Chicago Press, vol. 19(2), pages 337-358, June.
    8. William M. Landes, 1974. "An Economic Analysis of the Courts," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 164-214, National Bureau of Economic Research, Inc.
    9. George L. Priest & Benjamin Klein, 1984. "The Selection of Disputes for Litigation," The Journal of Legal Studies, University of Chicago Press, vol. 13(1), pages 1-56, January.
    10. Loewenstein, George & Issacharoff, Samuel & Camerer, Colin & Babcock, Linda, 1993. "Self-Serving Assessments of Fairness and Pretrial Bargaining," The Journal of Legal Studies, University of Chicago Press, vol. 22(1), pages 135-159, January.
    11. Shepherd, George B., 1999. "An empirical study of the economics of pretrial discovery," International Review of Law and Economics, Elsevier, vol. 19(2), pages 245-263, June.
    12. Jennifer F. Reinganum & Louise L. Wilde, 1986. "Settlement, Litigation, and the Allocation of Litigation Costs," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 557-566, Winter.
    13. Henry S. Farber & Michelle J. White, 1991. "Medical Malpractice: An Empirical Examination of the Litigation Process," RAND Journal of Economics, The RAND Corporation, vol. 22(2), pages 199-217, Summer.
    14. Daniel F. Rubinfeld & Suzanne Scotchmer, 1993. "Contingent Fees for Attorneys: An Economic Analysis," RAND Journal of Economics, The RAND Corporation, vol. 24(3), pages 343-356, Autumn.
    15. Png, I. P. L., 1986. "Optimal subsidies and damages in the presence of judicial error," International Review of Law and Economics, Elsevier, vol. 6(1), pages 101-105, June.
    16. Steven Shavell, 1982. "On Liability and Insurance," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 120-132, Spring.
    17. Che, Yeon-Koo & Yi, Jong Goo, 1993. "The Role of Precedents in Repeated Litigation," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 9(2), pages 399-424, October.
    18. Hylton, Keith N, 1993. "Asymmetric Information and the Selection of Disputes for Litigation," The Journal of Legal Studies, University of Chicago Press, vol. 22(1), pages 187-210, January.
    19. Cooter, Robert D & Rubinfeld, Daniel L, 1989. "Economic Analysis of Legal Disputes and Their Resolution," Journal of Economic Literature, American Economic Association, vol. 27(3), pages 1067-1097, September.
    20. Bernstein, Lisa, 1992. "Opting Out of the Legal System: Extralegal Contractual Relations in the Diamond Industry," The Journal of Legal Studies, University of Chicago Press, vol. 21(1), pages 115-157, January.
    21. Daughety, Adnrew F & Reinganum, Jennifer F, 1993. "Endogenous Sequencing in Models of Settlement and Litigation," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 9(2), pages 314-348, October.
    22. Kathryn E. Spier, 1992. "The Dynamics of Pretrial Negotiation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 59(1), pages 93-108.
    23. Joel L. Schrag, 1999. "Managerial Judges: An Economic Analysis of the Judicial Management of Legal Discovery," RAND Journal of Economics, The RAND Corporation, vol. 30(2), pages 305-323, Summer.
    24. Waldfogel, Joel, 1995. "The Selection Hypothesis and the Relationship between Trial and Plaintiff Victory," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 229-260, April.
    25. Snyder, Edward A & Hughes, James W, 1990. "The English Rule for Allocating Legal Costs: Evidence Confronts Theory," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 6(2), pages 345-380, Fall.
    26. Sykes, Alan O, 1994. ""Bad Faith" Refusal to Settle by Liability Insurers: Some Implications of the Judgment-Proof Problem," The Journal of Legal Studies, University of Chicago Press, vol. 23(1), pages 77-110, January.
    27. Rosenberg, D. & Shavell, S., 1985. "A model in which suits are brought for their nuisance value," International Review of Law and Economics, Elsevier, vol. 5(1), pages 3-13, June.
    28. Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn.
    29. Meurer, Michael J, 1992. "The Gains from Faith in an Unfaithful Agent: Settlement Conflict between Defendants and Liability Insurers," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 8(3), pages 502-522, October.
    30. Gravelle, H. S. E., 1993. "The efficiency implications of cost-shifting rules," International Review of Law and Economics, Elsevier, vol. 13(1), pages 3-18, March.
    31. Polinsky, A. Mitchell & Rubinfeld, Daniel L., 1988. "The deterrent effects of settlements and trials," International Review of Law and Economics, Elsevier, vol. 8(1), pages 109-116, June.
    32. Kennan, John & Wilson, Robert, 1993. "Bargaining with Private Information," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 45-104, March.
    33. Katz, Avery, 1987. "Measuring the Demand for Litigation: Is the English Rule Really Cheaper?," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 3(2), pages 143-176, Fall.
    34. Mnookin, Robert & Wilson, Robert, 1998. "A Model of Efficient Discovery," Games and Economic Behavior, Elsevier, vol. 25(2), pages 219-250, November.
    35. Urs Schweizer, 1989. "Litigation and Settlement under Two-Sided Incomplete Information," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 56(2), pages 163-177.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hemant Kushwaha & Sanjay Kumar Mishra & Manoj Kumar, 2023. "Management of litigation risk by Indian MSMEs," Journal of Financial Services Marketing, Palgrave Macmillan, vol. 28(2), pages 321-336, June.
    2. Neşve A. Turan Brewster & Peter D. Goldsmith, 2007. "Legal systems, institutional environment, and food safety," Agricultural Economics, International Association of Agricultural Economists, vol. 36(1), pages 23-38, January.
    3. Sergey Stepanov, 2010. "Shareholder access to manager‐biased courts and the monitoring/litigation trade‐off," RAND Journal of Economics, RAND Corporation, vol. 41(2), pages 270-300, June.
    4. Kryuchkova, P. & Avdasheva, S., 2012. "Public and Private Enforcement of Law under the High Risk of Type I Errors: the Russian Case," Journal of the New Economic Association, New Economic Association, vol. 15(3), pages 114-140.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Schwab, Christian & Tang, Hin-Yue Benny, 2011. "Die Steuerungswirkungen unterschiedlicher Prozesskostenregelungen: Ein Überblick zum Stand von Theorie und Empirie [The economic effects of alternative fee shifting rules: A review of the theoretic," MPRA Paper 32746, University Library of Munich, Germany.
    2. J.J. Prescott & Kathryn E. Spier & Albert Yoon, 2014. "Trial and Settlement: A Study of High-Low Agreements," NBER Working Papers 19873, National Bureau of Economic Research, Inc.
    3. J.J. Prescott & Kathryn E. Spier & Albert Yoon, 2014. "Trial and Settlement: A Study of High-Low Agreements," Journal of Law and Economics, University of Chicago Press, vol. 57(3), pages 699-746.
    4. Giuseppe Dari-Mattiacci & Bruno Deffains, 2007. "Uncertainty of Law and the Legal Process," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 163(4), pages 627-656, December.
    5. Chopard, Bertrand & Cortade, Thomas & Langlais, Eric, 2010. "Trial and settlement negotiations between asymmetrically skilled parties," International Review of Law and Economics, Elsevier, vol. 30(1), pages 18-27, March.
    6. Daniel P. Kessler & Daniel L. Rubinfeld, 2004. "Empirical Study of the Civil Justice System," NBER Working Papers 10825, National Bureau of Economic Research, Inc.
    7. Zhou, J., 2010. "Access to justice : An economic approach," Other publications TiSEM 9d70f451-35c4-4878-92bf-7, Tilburg University, School of Economics and Management.
    8. Argenton, Cedric & Wang, Xiaoyu, 2020. "Litigation and Settlement under Loss Aversion," Discussion Paper 2020-008, Tilburg University, Center for Economic Research.
    9. Dari-Mattiacci, Giuseppe & Deffains, Bruno & Lovat, Bruno, 2011. "The dynamics of the legal system," Journal of Economic Behavior & Organization, Elsevier, vol. 79(1), pages 95-107.
    10. Luca Anderlini & Leonardo Felli & Giovanni Immordino, 2019. "Costly Pretrial Agreements," The Journal of Legal Studies, University of Chicago Press, vol. 48(1), pages 159-188.
    11. Cédric Argenton & Xiaoyu Wang, 2023. "Litigation and settlement under loss aversion," European Journal of Law and Economics, Springer, vol. 56(2), pages 369-402, October.
    12. Peter Van Wijck & Ben Van Velthoven, 2000. "An Economic Analysis of the American and the Continental Rule for Allocating Legal Costs," European Journal of Law and Economics, Springer, vol. 9(2), pages 115-125, March.
    13. Andrew F. Daughety & Jennifer F. Reinganum, 1995. "Keeping Society in the Dark: On the Admissibility of Pretrial Negotiations as Evidence in Court," RAND Journal of Economics, The RAND Corporation, vol. 26(2), pages 203-221, Summer.
    14. Dari-Mattiacci, Giuseppe & Saraceno, Margherita, 2020. "Fee shifting and accuracy in adjudication," International Review of Law and Economics, Elsevier, vol. 63(C).
    15. Amy Farmer & Paul Pecorino, 2005. "Civil Litigation with Mandatory Discovery and Voluntary Transmission of Private Information," The Journal of Legal Studies, University of Chicago Press, vol. 34(1), pages 137-159, January.
    16. Baptiste Massenot & Maria Maraki & Christian Thoeni, 2016. "Legal compliance and litigation spending under the English and American rule: Experimental evidence," Cahiers de Recherches Economiques du Département d'économie 16.19, Université de Lausanne, Faculté des HEC, Département d’économie.
    17. Yasutora Watanabe, 2005. "Learning and Bargaining in Dispute Resolution: Theory and Evidence from Medical Malpractice Litigation," 2005 Meeting Papers 440, Society for Economic Dynamics.
    18. Keith N. Hylton & Haizhen Lin, 2009. "Trial Selection Theory: A Unified Model," Working Papers 2009-06, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    19. Virginia Rosales-López, 2008. "Economics of court performance: an empirical analysis," European Journal of Law and Economics, Springer, vol. 25(3), pages 231-251, June.
    20. Berlemann, Michael & Christmann, Robin, 2019. "Determinants of in-court settlements: empirical evidence from a German trial court," Journal of Institutional Economics, Cambridge University Press, vol. 15(1), pages 143-162, February.

    More about this item

    JEL classification:

    • D00 - Microeconomics - - General - - - General
    • D6 - Microeconomics - - Welfare Economics

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:9697. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.