Spite in Litigation

Abstract

The goal of this paper is to study how litigation and settlement behavior is affected by subjects motivated by spiteful preferences -- a potentially common driver for litigation behavior. We focus on litigation and settlement behavior both under the American and the English fee-shifting rule. To evaluate our theoretical predictions, we conduct an online experiment. We find that participants exhibit higher litigation expenditures under the English fee-shifting rule and that there is no difference for settlement requests. More importantly, we find that litigation expenditures and settlement requests are higher for more spiteful participants. The relative increase in litigation expenditures due to spite is more pronounced under the American fee-shifting rule. We further find that the expected payoff for more spiteful societies is much lower than for less spiteful societies. This effect is particularly pronounced for low-merit cases under the English rule compared to a constant cost under the American rule.

Keywords: Spite, Litigation, Settlement, Experiment, English rule, American rule

JEL Classification: K41, C72, C91, D91