Abstract and Keywords
This chapter examines the basic model of the law and economics of litigation, focusing on private civil litigation, in particular the litigation value of a lawsuit and the incentives for filing a suit. It begins with the one-stage single plaintiff/single defendant investment model of litigation, and describes the conditions for filing, default, settlement, and litigation. It examines the effects of litigation cost- and fee-shifting and the effects of percentage contingency fee arrangements within the standard one-stage model. The model is modified to take into account sequencing and option value. It is shown how litigation with multiple stages and the revelation of information alter the investment value of litigation, and the effects of litigation reform proposals such as fee-shifting. The chapter discusses third party or external effects and how these complications affect the outcome of litigation, the viability of a lawsuit, and the predictions of the standard model of litigation.
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