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An Analysis of Fee Shifting Based on the Margin of Victory: On Frivolous Suits, Meritorious Suits, and the Role of Rule 11

  • Bebchuk, Lucian Arye
  • Chang, Howard F

When plaintiffs cannot predict the outcome of litigation with certainty, neither the American rule (each litigant bears its own litigation expenses) nor the British rule (the losing litigant pays the attorneys' fees of the winning litigant) would induce optimal decisions to bring suit. Plaintiffs may bring frivolous suits when litigation costs are small relative to the amount at stake; plaintiffs may not bring meritorious suits when litigation costs are large relative to this amount. More general fee-shifting rules are based not only on the identity of the winning party but also on how strong the court perceives the case to be at the end of the trial (the "margin of victory"). We analyze when such a rule can induce plaintiffs to sue if and only if they believe their cases are sufficiently strong. We explore the implications of our analysis for the use of Federal Rule of Civil Procedure 11. Copyright 1996 by the University of Chicago.

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

Volume (Year): 25 (1996)
Issue (Month): 2 (June)
Pages: 371-403

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Handle: RePEc:ucp:jlstud:v:25:y:1996:i:2:p:371-403
Contact details of provider: Web page: http://www.journals.uchicago.edu/JLS/

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  1. Png, I. P. L., 1987. "Litigation, liability, and incentives for care," Journal of Public Economics, Elsevier, vol. 34(1), pages 61-85, October.
  2. Steven Shavell, 1981. "The Social versus the Private Incentive to Bring Suit in a Costly Legal System," NBER Working Papers 0741, National Bureau of Economic Research, Inc.
  3. Lucian Arye Bebchuk, 1987. "Suing Solely to Extract a Settlement Offer," NBER Working Papers 2161, National Bureau of Economic Research, Inc.
  4. Hylton, Keith N., 1990. "The influence of litigation costs on deterrence under strict liability and under negligence," International Review of Law and Economics, Elsevier, vol. 10(2), pages 161-171, September.
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