The Social versus the Private Incentive to Bring Suit in a Costly Legal System
NBER Working Paper No. 741
The question is asked how the incentives of private parties to bring suit relate to what would be socially appropriate given the costs of using the legal system; and the answer presented in the model that is examined involves two elements. The first is that as a potential plaintiff takes into account only his own legal expenses in deciding whether to bring suit, the private cost of suit is evidently less than the social cost (which would include the defendant's legal expenses), suggesting a tendency toward excessive litigation, other things equal. But consideration of the second element complicates matters: as the plaintiff takes into account his own expected gains but not the social gains attaching to suit (which in the model is the general effect of suit on potential defendants' behavior), and as these social gains could be either larger or smaller than his gains, there is a tendency in respect to litigation that could either counter or reinforce the previous tendency.
Published: Shavell, Steven. "The Social versus the Private Incentive to Bring Suit ina Costly Legal System." Journal of Legal Studies, Vol. 11, No. 2, (June 1982), pp. 333-340.