Private versus Social Costs in Bringing Suit

Louis Kaplow

doi:10.1086/467817

Abstract

Previous articleNext article No AccessPrivate versus Social Costs in Bringing SuitLouis KaplowLouis Kaplow Search for more articles by this author PDFPDF PLUS Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinkedInRedditEmail SectionsMoreDetailsFiguresReferencesCited by The Journal of Legal Studies Volume 15, Number 2Jun., 1986 Sponsored by The University of Chicago Law School Article DOIhttps://doi.org/10.1086/467817 Views: 10Total views on this site Citations: 34Citations are reported from Crossref Copyright 1986 The University of ChicagoPDF download Crossref reports the following articles citing this article:Nicolas Lampach, Wessel Wijtvliet, Arthur Dyevre Merchant hubs and spatial disparities in the private enforcement of international trade regimes, International Review of Law and Economics 64 (Dec 2020): 105946.https://doi.org/10.1016/j.irle.2020.105946Samantha Bielen, Wim Marneffe, Wim Vereeck Litigation Decision, (Apr 2019): 1352–1360.https://doi.org/10.1007/978-1-4614-7753-2_589Keith N. Hylton The Influence of Litigation Costs on Deterrence under Strict Liability and under Negligence, (Jan 2018): 165–175.https://doi.org/10.4324/9781315188133-10Yannis Katsoulacos, David Ulph Legal uncertainty, competition law enforcement procedures and optimal penalties, European Journal of Law and Economics 41, no.22 (Jun 2015): 255–282.https://doi.org/10.1007/s10657-015-9504-1Emanuela Carbonara, Francesco Parisi, Georg von Wangenheim Rent-Seeking and Litigation: The Hidden Virtues of Limited Fee Shifting, Review of Law & Economics 11, no.22 (Jun 2015): 113–148.https://doi.org/10.1515/rle-2015-0027S. Bielen, W. Marneffe, L. Vereeck Litigation Decision, (Feb 2015): 1–10.https://doi.org/10.1007/978-1-4614-7883-6_589-1Bruce H. Kobayashi The Law and Economics of Litigation, SSRN Electronic Journal (Jan 2015).https://doi.org/10.2139/ssrn.2613145Giovanni Immordino, Michele Polo Antitrust, legal standards and investment, International Review of Law and Economics 40 (Oct 2014): 36–50.https://doi.org/10.1016/j.irle.2014.08.003Pierre Bentata Liability as a complement to environmental regulation: an empirical study of the French legal system, Environmental Economics and Policy Studies 16, no.33 (Nov 2013): 201–228.https://doi.org/10.1007/s10018-013-0073-7Jan M. Ambrose, Anne M. Carroll, Laureen Regan The Economics of Liability Insurance, (Jul 2013): 315–347.https://doi.org/10.1007/978-1-4614-0155-1_12Pierre Bentata Liability as a Complement to Environmental Regulation: An Empirical Study of the French Legal System, SSRN Electronic Journal (Jan 2013).https://doi.org/10.2139/ssrn.2290945Barbara Luppi, Francesco Parisi Litigation and legal evolution: does procedure matter?, Public Choice 152, no.1-21-2 (May 2012): 181–201.https://doi.org/10.1007/s11127-011-9860-5Diego G. Pardow What Should We Expect from the Dodd-Frank Bounty Program?, SSRN Electronic Journal (Jan 2012).https://doi.org/10.2139/ssrn.2115964Emanuela Carbonara, Francesco Parisi Rent-Seeking and Litigation: The Hidden Virtues of the Loser-Pays Rule, SSRN Electronic Journal (Jan 2012).https://doi.org/10.2139/ssrn.2144800Thomas J. Miceli Legal change and the social value of lawsuits, International Review of Law and Economics 30, no.33 (Sep 2010): 203–208.https://doi.org/10.1016/j.irle.2010.04.002Barbara Luppi, Francesco Parisi Litigation and Legal Evolution: Does Procedure Matter?, SSRN Electronic Journal (Jan 2010).https://doi.org/10.2139/ssrn.1555784Erik Lenntorp On the joint use of licensing and liability, International Review of Law and Economics 29, no.33 (Sep 2009): 244–251.https://doi.org/10.1016/j.irle.2009.02.001Christian Langpap Self-Reporting and Private Enforcement in Environmental Regulation, Environmental and Resource Economics 40, no.44 (Nov 2007): 489–506.https://doi.org/10.1007/s10640-007-9166-8Christian Langpap Pollution abatement with limited enforcement power and citizen suits, Journal of Regulatory Economics 31, no.11 (Dec 2006): 57–81.https://doi.org/10.1007/s11149-006-9010-zSteven Shavell Chapter 2 Liability for Accidents, (Jan 2007): 139–182.https://doi.org/10.1016/S1574-0730(07)01002-XHoward H. Chang, David S. Evans The Optimal Prosecution of Corporate Fraud: An Error Cost Analysis, SSRN Electronic Journal (Jan 2006).https://doi.org/10.2139/ssrn.943035 Alan O. Sykes Public versus Private Enforcement of International Economic Law: Standing and Remedy Sykes, The Journal of Legal Studies 34, no.22 (Jul 2015): 631–666.https://doi.org/10.1086/431781Alan O. Sykes Public vs. Private Enforcement of International Economic Law: Of Standing and Remedy, SSRN Electronic Journal (Jan 2005).https://doi.org/10.2139/ssrn.671801Louis Kaplow, Steven Shavell Economic Analysis of Law, (Jan 2002): 1661–1784.https://doi.org/10.1016/S1573-4420(02)80029-5Vikramaditya S. Khanna Toward a Functional Understanding of Standing, SSRN Electronic Journal (Jan 2002).https://doi.org/10.2139/ssrn.304390Steven Shavell The level of litigation: private versus social optimality of suit and of settlement, International Review of Law and Economics 19, no.11 (Mar 1999): 99–115.https://doi.org/10.1016/S0144-8188(98)00026-XKeith N. Hylton Welfare Implications of Costly Litigation Under Strict Liability, SSRN Electronic Journal (Jan 1999).https://doi.org/10.2139/ssrn.182792Clinton F. Beckner, Avery Katz The incentive effects of litigation fee shifting when legal standards are uncertain, International Review of Law and Economics 15, no.22 (Jun 1995): 205–224.https://doi.org/10.1016/0144-8188(95)00007-UKeith N. Hylton The influence of litigation costs on deterrence under strict liability and under negligence, International Review of Law and Economics 10, no.22 (Sep 1990): 161–171.https://doi.org/10.1016/0144-8188(90)90021-KJohn Kambhu Direct controls and incentives systems of regulation, Journal of Environmental Economics and Management 18, no.22 (Mar 1990): S72–S85.https://doi.org/10.1016/0095-0696(90)90040-6John Kambhu Regulatory standards, noncompliance and enforcement, Journal of Regulatory Economics 1, no.22 (Jun 1989): 103–114.https://doi.org/10.1007/BF00140020 Kathleen Engelmann , and Bradford Cornell Measuring the Cost of Corporate Litigation: Five Case Studies, The Journal of Legal Studies 17, no.22 (Oct 2015): 377–399.https://doi.org/10.1086/468134 A. Mitchell Polinsky , and Daniel L. Rubinfeld The Welfare Implications of Costly Litigation for the Level of Liability, The Journal of Legal Studies 17, no.11 (Oct 2015): 151–164.https://doi.org/10.1086/468125 The Economics of Tort Law:Basics and Selected Core Themes, (): 7–63.https://doi.org/10.1007/978-3-8349-8127-1_2

Highlights

T HEenforcementof largeportionsof substantivelaw is througha legal system that relies on privatepartiesto bringsuit when such action is in their own best interests
Recent work has analyzed the serious deficienciesof this system of privateenforcementthat arise because the costs of operatingthe legal system create a divergencebetween actual private incentives to sue and those that would lead to socially optimal results
Shavellnotedthatlitigationcontainsa built-inexternality in that the private costs of suit are generallyless than the social costs, giventhatthe plaintiffdoes not bearthe defendant'sor anypubliccosts of suit

Summary

NUMERICAILLUSTRATIOFNRESULTS

The private benefit is 40 since the injurer, in the presence of costly litigation as assumed in the example, will produce 5 units and cause damages of 40.8. Convergence wouldthereforerequirethatthe socialbenefitsof suitalsoincreasewithoutput.Thatimplies thatprofitsarerisingfasterthandamages,whichcannotbe truewheremarginapl rofitequals marginaldamagesor at higherlevels of output.(Benefitconvergencecan exist, case A, at the unconstrainedoptimumoutputlevel only because the exampleis discrete ratherthancontinuous.)Moregenerally,benefitconvergenceis itselfa happenstanceevent, so to expect thathappenstanceresultto holdover a rangeof outputandnotjust at anyone point would be quite farfetched It is worth consideringmore generallythe possible effects of makingplaintiffs (even whenvictorious)beardefendants'litigationcosts in Menell'smodel.Therearethree relevantsituations.(1) Equilibriumbeforeandafterthe changein cost rulesis characterized by theplaintiff'sbringingsuit. (3)Equilibriumbeforeandafterthechange involvessuitpreclusion.The changewillincreaseequilibriumoutput,whichwillincreaseor decreasenet benefits,dependingon whetheroutputis therebycloser to or fartherfromthe Note that this inefficiency arises even though the injurer's decision not topreclude suit was efficient, taking as given the private/social cost divergence facing the plaintiff. In that situation, no general conclusion can be made concerning the desirability of closing the divergence between private and social costs; such action would increase equilibrium output, which may or may not be desirable because equilibrium output initially may be below or above the unconstrained social optimum

Preliminaries

Prohibiting Suit by Rule

Interpretation of Results

CONCLUSION

RESULTS