Trial Incentives in Sequential Litigation

Abstract

We analyze when and why trials can emerge in equilibrium when a defendant may sequentially face multiple plaintiffs. Subsequent potential plaintiffs learn about their chances of winning from the initial trial outcome. An initial trial serves as an experiment that the defendant can run to induce plaintiffs' learning. The initial case may go to trial when a favorable trial outcome for the defense can deter potential future plaintiffs from filing lawsuits. Possible future meritless lawsuits further raise the attraction of an initial trial. We show how outcomes are affected if the initial plaintiff's attorney may represent future clients, and hence also values learning, and derive the impact of the plaintiff's bargaining power.

Experiments in law and economics

“…Future contributions could explore how individuals respond to the interaction between legal instruments and contexts. Further evidence is also needed on other important yet underexplored characteristics of legal procedures, including sequential litigation (Bernhardt and Lee, 2015), court errors and parties' probatory difficulties (Kaplow, 2017), and different standards of proof .…”

A theory of socially inefficient patent holdout

“…He shows that the incentives to go to court are affected by the information that the court outcome might reveal on the strength of the patent. Bernhardt and Lee (2014) study a similar setup where a defendant engages in initial litigation to prevent future potential plaintiffs to file a lawsuit. Choi and Gerlach (2018) study the decision of a nonpracticing entity to sue a potential user of the technology to establish a reputation against future users 7.…”