Litigation Economics and Strategic Decision-Making
Summary
Litigation economics examines the allocation of resources, incentives and risks among litigants, legal counsel and courts. It treats disputes as strategic interactions in which parties assess the costs of legal action, the probabilities of various outcomes and the utility of potential awards. Central to this field is the modelling of settlement negotiations versus trial, where each side balances the expense and duration of litigation against the expected value of a judicial verdict. Game theory underpins many analyses, illuminating how information asymmetries, fee arrangements and behavioural biases shape choices. Lawyers influence client decisions through fee structures and selective disclosure of case merits, while behavioural concepts such as loss aversion and framing effects alter plaintiffs’ and defendants’ willingness to compromise. The global significance of this research lies in its capacity to inform policy reforms that enhance access to justice, streamline dispute resolution and promote efficient court systems. Empirical studies draw on cross-jurisdictional data to assess how varying procedural rules, liability regimes and information regimes affect litigation dynamics and social welfare.
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Litigation Economics and Strategic Decision-Making publication trend
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Technical terms
Contingent fee: a payment arrangement under which a lawyer receives a predefined percentage of the award only if the case is successful.
Loss aversion: a behavioural bias whereby losses are perceived more intensely than equivalent gains, influencing litigants’ risk preferences.
Bayesian persuasion: a strategic mechanism in which an informed party selectively discloses information to influence another party’s actions through belief updating.
Information asymmetry: a situation in which one party possesses more or better information than the other, affecting negotiation power and outcomes.
References
- Asymmetric Reimbursement and Contingent Fees in Environmental Conflicts: Observable vs. Unobservable Contracts. Games (2023).
- Litigation and settlement under loss aversion. European Journal of Law and Economics (2023).
- Bayesian persuasion in lawyer–client communication. International Review of Law and Economics (2024).
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