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Optimal plaintiff incentives when courts are imperfect

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  • Philip Bond
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    Abstract

    The incentives of a plaintiff in a lawsuit are affected by a variety of legal rules. One leading example is the proportion of the fine imposed on the defendant that is awarded to the plaintiff. Another is the identity of the plaintiff himself: private litigants are motivated by the prospect of receiving damages, while government employed plaintiffs (such as public prosecutors and employees of regulatory agencies) are instead rewarded (if at all) by career advancement. The paper examines the interaction between court characteristics and plaintiff incentives on the deterrence provided by contracts/laws/regulations. It shows that a key determinant of the optimal level of plaintiff incentives is the extent to which a party arguing ``against the facts'' is able to influence the court. When such influence is possible, it is generally optimal to restrict plaintiff incentives. Implications for the use of split-award statutes, loser-pays rules, class action lawsuits, and public enforcement are discussed. In more general terms, the paper makes precise an avenue via which legal rules affect the efficacy of a legal system

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    Bibliographic Info

    Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 723.

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    Date of creation: 2004
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    Handle: RePEc:red:sed004:723

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    Keywords: Plaintiff behavior; deterrence; legal procedure;

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    1. Shavell, Steven, 1993. "The Optimal Structure of Law Enforcement," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 36(1), pages 255-87, April.
    2. Patrick Legros & Andrew Newman, 2002. "Courts, contracts and interference," ULB Institutional Repository 2013/7034, ULB -- Universite Libre de Bruxelles.
    3. Katz, Avery, 1988. "Judicial decisionmaking and litigation expenditure," International Review of Law and Economics, Elsevier, Elsevier, vol. 8(2), pages 127-143, December.
    4. Thorsten Beck & Asli Demirguc-Kunt & Ross Levine, 2003. "Bank Supervision and Corporate Finance," NBER Working Papers 9620, National Bureau of Economic Research, Inc.
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    6. Edward L. Glaeser & Andrei Shleifer, 2003. "The Rise of the Regulatory State," Journal of Economic Literature, American Economic Association, vol. 41(2), pages 401-425, June.
    7. Albert Choi & Chris Sanchirico, . "Should Plaintiffs Win What Defendants Lose?: Litigation Stakes, Litigation Effort, and the Benefits of 'Decoupling'," Scholarship at Penn Law, University of Pennsylvania Law School upenn_wps-1000, University of Pennsylvania Law School.
    8. Spurr, Stephen J., 1991. "An economic analysis of collateral estoppel," International Review of Law and Economics, Elsevier, Elsevier, vol. 11(1), pages 47-61, May.
    9. Snyder, Edward A & Hughes, James W, 1990. "The English Rule for Allocating Legal Costs: Evidence Confronts Theory," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 6(2), pages 345-80, Fall.
    10. 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 1067-97, September.
    11. Spier, Kathryn E, 1994. "Settlement Bargaining and the Design of Damage Awards," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 10(1), pages 84-95, April.
    12. Gary S. Becker & George J. Stigler, 1974. "Law Enforcement, Malfeasance, and Compensation of Enforcers," The Journal of Legal Studies, University of Chicago Press, University of Chicago Press, vol. 3(1), pages 1-18, January.
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