Publications
Publications
- August 2023
- Journal of Financial Economics
Financing the Litigation Arms Race
By: Samuel Antill and Steven R. Grenadier
Abstract
Using a dynamic real-option model of litigation, we show that the increasingly popular practice of third-party litigation financing has ambiguous implications for total ex-post litigant surplus. 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 defendant. In contrast to popular opinion, litigation financing does not necessarily encourage high-risk frivolous lawsuits.
Keywords
Litigation Financing; Dynamic Bargaining; Real Options; Lawsuits and Litigation; Financing and Loans
Citation
Antill, Samuel, and Steven R. Grenadier. "Financing the Litigation Arms Race." Journal of Financial Economics 149, no. 2 (August 2023): 218–234.