Working Paper: NBER ID: w0662
Authors: Steven Shavell
Abstract: Will a party who believes that he has a legally admissible claim for money damages decide to bring suit? if so, will he subsequently settle with the opposing party or will he go ahead to trial? These questions are analyzed under four methods for allocating legal costs, namely, under the American system, whereby each side bears its own costs; under the "indemnity" or British system, whereby the losing side bears all costs; under the system favoring the plaintiff whereby the plaintiff pays only his own costs if he loses and nothing otherwise; and under the system favor the defendant, whereby the defendant pays only his own costs if he loses and nothing otherwise. Following the analysis, two brief illustrations are considered and comments are made on the relative social desirability of the methods of allocating legal costs.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Legal cost allocation (American system) (K41) | Plaintiff's decision to bring suit (K41) |
| Expected judgment exceeds legal costs (K41) | Plaintiff's decision to bring suit (K41) |
| Plaintiff's perceived probability of winning > certain threshold (K41) | Frequency of suits (British system) (C46) |
| Risk aversion (D81) | Plaintiff's decision to bring suit (K41) |
| Legal cost allocation (British system) (K41) | Plaintiff's decision to bring suit (K41) |
| Risk aversion (D81) | Litigation propensity (K41) |