Bebchuk, Lucian A.; Klement, Alon --- "Negative-Expected-Value Suits" [2012] ELECD 100; in Sanchirico, William Chris (ed), "Procedural Law and Economics" (Edward Elgar Publishing, 2012)

Book Title: Procedural Law and Economics

Editor(s): Sanchirico, William Chris

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781847208248

Section: Chapter 12

Section Title: Negative-Expected-Value Suits

Author(s): Bebchuk, Lucian A.; Klement, Alon

Number of pages: 9

Extract:

12 Negative-expected-value suits
Lucian A. Bebchuk and Alon Klement


This chapter reviews the state of knowledge about why (and when)
plaintiffs with negative-expected-value (NEV) suits can extract a positive
settlement amount from the defendant. The literature on the subject has
continued to grow since the publication of the earlier review by Bebchuk
(1998), and we attempt to reflect in this chapter all the advances made
since that time.

1. Definition of NEV suits
A negative-expected-value (NEV) suit is one in which the plaintiff would
obtain a negative expected return from pursuing the suit all the way to
judgment ­ that is, one in which the plaintiff's expected total litigation
costs would exceed the expected judgment. Thus, denoting by Cp and Cd
the total litigation costs of the plaintiff and the defendant respectively and
by W the expected judgment, a suit is an NEV suit if Cp . W.
It should be emphasized that an NEV suit need not be a frivolous suit
­ that is, a suit in which the plaintiff is unlikely to win. The expected judg-
ment is a product of the likelihood of a plaintiff's victory and the amount
at stake. Therefore, a meritorious suit ­ one in which the likelihood of
a plaintiff victory is quite high ­ might be NEV if the litigation costs
involved are sufficiently large relative to the amount at stake.

2. The Puzzle of NEV suits
It is generally believed that cases with NEV suits are abundant, and ...