Publications
Publications
- 2020
Financing the Litigation Arms Race
By: Samuel Antill and Steven R. Grenadier
Abstract
Using a continuous-time model of litigation, we show that the increasingly popular practice of third-party litigation financing has ambiguous welfare implications. A defendant and a plaintiff bargain over a settlement payment. The defendant takes costly actions to avoid deadweight losses associated with large transfers to the plaintiff. Litigation financing bolsters the plaintiff, leading to larger deadweight losses. However, by endogenously deterring the defendant from taking costly actions, litigation financing can nonetheless improve the joint surplus of the plaintiff and the defendant. In contrast to popular opinion, litigation financing does not necessarily encourage high-risk frivolous lawsuits.
Keywords
Citation
Antill, Samuel, and Steven R. Grenadier. "Financing the Litigation Arms Race." Working Paper, November 2020.