The Costs of Trial: Theoretical and Experimental Insights (R-9777)

A thorough understanding of litigation costs from different perspectives is important for at least two reasons. First, litigation costs influence virtually every decision that parties make, from the moment they decide on ex ante behavior (e.g. signing a contract or amount of care to prevent accidents), to the decision to sue or not and whether to appeal or not. Second, total costs of litigation absorb a considerable fraction of GDP. A better understanding of determinants of trial costs can lead to more refined approaches to contain the costs of the justice system. While the costs of litigation have been examined from different perspectives in the law and economics literature, several gaps remain. First, although we have substantial insight in the incentive and risk costs, we lack knowledge of the associated litigation costs for several important legal rules. Without a litigation cost analysis, a solid social welfare analysis cannot be made. Second, we do not know whether current theoretical models which shed light on the fundamental elements that influence the litigation costs of the parties, are accurate. For example, we do not know how the strength of a case influences litigant expenditures. In order to fill these gaps, we will (1) apply both general and specific rent seeking functions to important legal rules and (2) provide empirical evidence, using experiments, on the accuracy of the current theoretical models that predict the determinants of litigation costs.

Keywords:POLICY MANAGEMENT

Disciplines:Law and economics