Strategic behavior in environmental contests with asymmetric ability and reimbursement

Abstract

In US environmental citizen suits, the burden of proof and the litigation process favor the defendant (a polluting firm) over the plaintiff (a citizens’ group), whereas fee-shifting provisions favor prevailing plaintiffs over prevailing defendants. These two effects, asymmetric ability and asymmetric reimbursement, independently create different favorites and underdogs. Acknowledging these two asymmetries, our research (1) clarifies the favorite/underdog blur under three timing assumptions; (2) shows that with endogenous timing, the plaintiff moves first whether they are favorite or underdog; (3) finds that asymmetric fee-shifting provisions, conceived to favor prevailing plaintiffs, can disincentivize plaintiffs from suing by making them worse-off than under the American rule; and (4) shows that the efficient outcome may never be reached, even with endogenous timing. The compounding effects of prize asymmetry are analyzed.