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The optimal adjustment to liability when litigation is costly: A note

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  • De Mot, Jef
  • Miceli, Thomas J.

Abstract

We show that the optimal liability award with variable litigation costs may be either larger or smaller than the sum of the victim's harm and litigation costs. The reason is that there are two countervailing effects at play. On the one hand, larger damage awards lead to increased litigation expenditures, which have a dampening effect on optimal damages. On the other hand, variable litigation costs only make sense if the parties anticipate a gain from expending litigation effort, which necessarily translates into a probability of plaintiff victory that is less than one. Consequently, the deterrence function of the trial is mitigated, justifying an upward adjustment in the optimal damage award. The optimal adjustment balances these two effects.

Suggested Citation

  • De Mot, Jef & Miceli, Thomas J., 2019. "The optimal adjustment to liability when litigation is costly: A note," International Review of Law and Economics, Elsevier, vol. 58(C), pages 127-131.
    • Handle: RePEc:eee:irlaec:v:58:y:2019:i:c:p:127-131
    DOI: 10.1016/j.irle.2019.03.008
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    References listed on IDEAS

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    More about this item

    Keywords

    Optimal damages; Costly litigation; Rent seeking;
    All these keywords.

    JEL classification:

    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process

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