Optimal Design of Private Litigation

Harvard Law School John M. Olin Center Discussion Paper No. 928

29 Pages Posted: 17 Aug 2017

See all articles by Louis Kaplow

Louis Kaplow

Harvard Law School; National Bureau of Economic Research (NBER)

Date Written: August 15, 2017

Abstract

This article translates and extends Becker (1968) from public law enforcement to private litigation by examining optimal legal system design in a model with private suits, signals of case strength, court error, and two types of primary behavior: harmful acts that may be deterred and benign acts that may be chilled. The instruments examined are filing fees or subsidies that may be imposed on either party, damage awards and payments by unsuccessful plaintiffs (each of which may be decoupled), and the stringency of the evidence threshold (burden of proof). With no constraints, results arbitrarily close to the first best can be implemented. Prior analyses of optimal damage awards, decoupling, and fee shifting are shown to involve special cases. More important, previous results change qualitatively when implicit assumptions are relaxed. For example, introducing a filing fee can make it optimal to minimize what losing plaintiffs pay winning defendants and to reduce the evidence threshold as much as possible — even though the direct effect of these adjustments is to chill desirable behavior, a key feature absent in prior work.

Keywords: Litigation, law enforcement, courts, fee shifting, decoupling, filing fees, burden of

JEL Classification: D82, H23, K13, K41, K42

Suggested Citation

Kaplow, Louis, Optimal Design of Private Litigation (August 15, 2017). Harvard Law School John M. Olin Center Discussion Paper No. 928. Available at SSRN: https://ssrn.com/abstract=3017443 or http://dx.doi.org/10.2139/ssrn.3017443

Louis Kaplow (Contact Author)

Harvard Law School ( email )

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