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This article advances a proposal that increases access to justice for valuable lawsuits that are currently discouraged by litigation costs. Our proposal converts claims with negative expected values into positive expected value claims by implementing a novel system involving flexible conditional multipliers. Our proposal has two components. First, under the proposed system a plaintiff is allowed to select a damage multiplier that determines the amount of damages the plaintiff receives if the litigation is successful. Second, courts select cases for litigation randomly with a probability inverse to the multiplier selected by the plaintiff.
Frivolous lawsuits, punitive damage awards, and large jury verdicts create the perception that society is excessively litigious.1 Recent theoretical and empirical evidence suggest, however, that the increased complexity and costs of litigation may deter the pursuit of meritorious claims in various areas of law.2 Instances in which litigation costs outweigh the expected benefits of trial are no longer the exclusive territory of small claim disputes. High cost-to-value litigation ratios are now common in patent law,3 corporate law, and mass tort disputes, among others.4 The possibility of suboptimal levels of litigation raises a number of concerns. Standard models of litigation predict that a plaintiff will file a lawsuit only if the expected benefits of a trial outweigh the expected costs. If the litigation costs outweigh the expected benefits of trial, a potential plaintiff will not file a lawsuit, even if the probability of winning is high. Consequently, if too few claims are pursued in court the deterrent effect of the legal system is undermined. For instance, if there is no credible threat of facing financial repercussions, too few potential tortfeasors invest adequately in precaution, leading to higher overall accident rates.5 Especially if tortfeasors are in a position to prevent certain accident losses at low costs, the absence of a reasonable expectation of facing a lawsuit is problematic. In such circumstances, creating positive value suits can lead to substantial welfare gains. This article seeks to resolve the issue of suboptimal levels of litigation by implementing a novel system of litigation. Our proposal has two components. First, we propose that a plaintiff is allowed to select a damage multiplier that determines the amount of damages he or she will receive if the litigation is successful. Second, we propose that courts randomly select cases for litigation with a probability inverse to the multiplier the plaintiff selected. In essence, this proposal introduces a flexible damage multiplier that inversely affects the probability of adjudication. The advantages of the proposal are threefold. First, by reducing the costs of litigation relative to the gains, a multiplier creates a credible threat to sue for some individuals that would otherwise not pursue claims that have substantial merit. Consequently, the deterrent function of the legal system is improved. Second, the proposal reaches this objective without inducing excessive precautions. Because the random element of adjudication is set off against the increased damages of the multiplier, the expected loss of a suit remains more or less equal for the defendant.6 Third, the proposed system has the advantage of providing plaintiffs the opportunity to self-select the optimal multiplier. The optimal multiplier may strongly differ from plaintiff to plaintiff, depending inter alia on varying risk attitudes and differences in litigation costs between the plaintiff and defendant in a dispute (see Section 5 below). A potential downside of our proposal is that, by converting claims with negative expected values into positive expected value claims, litigation costs may increase. However, the potential increase in litigation costs is mitigated, to some degree, by the fact that our mechanism eliminates a fraction of the claims that are currently filed. Also, the increased level of deterrence should reduce the overall accident rate. Finally, in order to further mitigate increased litigation costs and reduce the amount of weak and frivolous claims, we consider including a maximum multiplier in the proposed system. We proceed as follows. Section 2 describes the proposal and outlines the main effects. Section 3 contains a formal exposition of our proposal. Section 4 discusses a number of possible objections to our proposal and suggests some possible modifications to the proposal. Section 5 compares the advantages and disadvantages of our system to two alternative systems involving multipliers. Section 6 concludes.
این مقاله شامل 8913 کلمه می باشد.