1. Law and Economics-Charles W. Upton Other Issues in Litigation

2. Nuisance Suits Suppose p p = p d = 0. –Both parties know the suit is without merit. Does it still make sense to settle?

3. Other Issues in Litigation Nuisance Suits Suppose p p = p d = 0. –Both parties know the suit is without merit. Does it still make sense to settle? Legal costs are Y p, and Y d. A settlement will be for $X.

4. Other Issues in Litigation Payoffs

5. Other Issues in Litigation Payoffs The strategy is not clear. If you always settle, you encourage nuisance suits. If you always litigate, you may pay more

6. Other Issues in Litigation Payoffs The strategy is not clear. If you always settle, you encourage nuisance suits. If you always litigate, you may pay more The right strategy is a minimax strategy. Settle P percent of the time and litigate (1-P) percent of the time

7. Other Issues in Litigation Payoffs The strategy is not clear. If you always settle, you encourage nuisance suits. If you always litigate, you may pay more The right strategy is a minimax strategy. Settle P percent of the time and litigate (1-P) percent of the time Choose P so that (1-p)X + p(-Y p )= 0

8. Other Issues in Litigation Payoffs The strategy is not clear. If you always settle, you encourage nuisance suits. If you always litigate, you may pay more The right strategy is a minimax strategy. Settle P percent of the time and litigate (1-P) percent of the time Choose P so that (1-p)X + p(-Y p )= 0 X = $1000; Y p = $4000 P = 0.20

9. Other Issues in Litigation Mixed Plaintiffs There are a number of plaintiffs, some of who are genuine and some of whom are ambulance chasers.

10. Other Issues in Litigation Mixed Plaintiffs There are a number of plaintiffs, some of who are genuine and some of whom are ambulance chasers. Let’s suppose the defendant offers $10,000 to settle, and that litigation costs will be $1,000. Those with injuries less than $11,000 will settle, but this is then an incentive for false claims.

11. Other Issues in Litigation Mixed Plaintiffs There are a number of plaintiffs, some of who are genuine and some of whom are ambulance chasers. Let’s suppose the defendant offers $10,000 to settle, and that litigation costs will be $1,000. Those with injuries less than $11,000 will settle, but this is then an incentive for false claims. A defendant must balance these issues

12. Other Issues in Litigation Bluff Some times offer nothing and sometimes offer a genuine settlement. Nuisance suits will disappear, and in fact will be deterred by this possibility.

13. Other Issues in Litigation Bluff Some times offer nothing and sometimes offer a genuine settlement. Nuisance suits will disappear, and in fact will be deterred by this possibility. A political problem: you are offering nothing or very little to those genuinely injured.

14. Other Issues in Litigation The Incentives of Judges Presumably lawyers are motivated by greed. The motivation of judges is more complex.

15. Other Issues in Litigation The Incentives of Judges Presumably lawyers are motivated by greed. The motivation of judges is more complex. Consider two cases: –Judge A is a federal judge who has lifetime tenure. He wants to minimize grief. –Judge B is a state judge subject to reelection. Worries about losing his job.

16. Other Issues in Litigation Two Final Issues The Loser pays all rule. –Clearly influences nuisance cases and increases settlements. But can also be used to tyrannize people

17. Other Issues in Litigation Two Final Issues The Loser pays all rule. –Clearly influences nuisance cases and increases settlements. But can also be used to tyrannize people Unitary versus Segmented trials –Juries hate them, but defendants prefer them

18. Other Issues in Litigation End ©2004 Charles W. Upton