Corporate Cooperation Through Cost-Sharing

Abstract:     
Corporations are well aware that “the primary source of delays and cost in civil litigation” is discovery. The exorbitant cost and incentives for discovery abuse make it difficult for corporate managers to make rational cost/benefit determinations regarding the course of litigation. Consequently, corporations are often forced to settle cases as a cost avoidance measure, even if, in the language of the Supreme Court, the case is “anemic” on its merits.

Scholarly inquiry into discovery abuse has proposed solutions that are ineffective because they are constrained by the current discovery incentive structure. Although the proposals may change the ways in which parties request discovery relief or the number of steps involved in the discovery process, the suggested reforms have not addressed the underlying incentives that motivate abusive discovery practices. This Article proposes a categorical shift in incentives for corporations litigating against each other. It utilizes the prisoners’ dilemma to provide an innovative solution to the uncapped costs borne by corporate actors in complex civil suits. By applying a game-theoretic approach to discovery strategy, it recommends a cost-sharing legal regime which restructures litigant incentives to encourage cost-lowering cooperation. The proposal thereby improves the ability of corporate managers to assess risks when making litigation and settlement decisions.

Number of Pages in PDF File: 41

Keywords: corporations, discovery, electronic discovery, cost-sharing, game theory, litigation, complex litigation, prisoners’ dilemma

JEL Classification: K22, K41, L14, L20

Accepted Paper Series