Financing the litigation arms race

• 成果类型: Article
• 署名作者: Antill, Samuel; Grenadier, Steven R.
• 署名单位: Harvard University; Stanford University
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2023.05.004
• 发表日期: 2023
• 页码: 218-234
• 关键词: real options; Litigation financing; Third -party litigation funding; Dynamic bargaining

摘要

Using a dynamic real-option model of litigation, we show that the increasingly popular practice of third-party litigation financing has ambiguous implications for total ex-post liti-gant surplus. A defendant and a plaintiff bargain over a settlement payment. The defendant takes costly actions to avoid deadweight losses associated with large transfers to the plain-tiff. Litigation financing bolsters the plaintiff, leading to larger deadweight losses. How-ever, by endogenously deterring the defendant from taking costly actions, litigation financ-ing can nonetheless improve the joint surplus of the plaintiff and defendant. In contrast to popular opinion, litigation financing does not necessarily encourage high-risk frivolous lawsuits. & COPY; 2023 Elsevier B.V. All rights reserved.