Law and Economics and Tort Litigation Institutions: Theory and Experiments
Kathryn Zeiler and Joshua Teitelbaum (eds.), The Research Handbook on Behavioral Law and Economics, Edward Elgar Publishing, Forthcoming
45 Pages Posted: 16 Dec 2014
Date Written: December 15, 2014
In tort litigation, delayed settlement or impasse imposes high costs on the parties and society. Litigation institutions might influence social welfare by affecting the likelihood of out-of-court settlement and the potential injurers' investment in product safety. An appropriate design of litigation institutions and tort reform requires good knowledge of the factors that affect litigants' behavior. The combination of theoretical and experimental law and economics, which represents the cornerstone of the application of the scientific method, might enhance our understanding of the effects of litigation institutions and tort reform on settlement and deterrence.
We evaluate the interaction between theoretical and experimental law and economics in the study of tort litigation institutions. Special attention is devoted to liability, litigation and tort reform institutions, and behavioral factors that might affect impasse. Our analysis suggests a productive interaction between theoretical and experimental law and economics. In particular, findings from experimental economics work on litigation institutions indicate the presence and robustness of cognitive biases, and provide evidence of the effects of litigants' biased beliefs on the likelihood of impasse. These findings have motivated the construction of new economic models of litigation involving more empirically-relevant assumptions about litigants' beliefs. As a result of the application of the scientific method, the contributions of law and economics to the design of legal institutions might be strengthened.
Keywords: Law and Economics, Experimental Law and Economics, Scientific Method, Civil Litigation, Institutional Design, Settlement, Litigation, Asymmetric Information, Self-Serving Bias, Pretrial Bargaining, Incentives for Care, Experiments, Caps on Non-Economic Damages, Motivated Reasoning, Divergent Beliefs
JEL Classification: K21, K41, C72, C90, L12, L40, C72, C91, D62, D82, D86, J52, J58, K12, K21, K41, L42
Suggested Citation: Suggested Citation