Abstract
We model civil litigation as a simultaneous contest between a plaintiff and a defendant who have monetary and emotional preferences. The litigants’ emotional variables capture a non-monetary joy of winning and relational emotions toward each other. A contest success function (CSF) describes the litigants’ respective probabilities of success based on their endogenous litigation expenses and exogenous relative advantages. The model does not specify a functional form for the CSF. Instead, it accommodates any CSF that satisfies general and intuitive assumptions, which capture frequently-used functional forms. A cost-shifting rule allows the winner to recover an exogenous proportion of her litigation expenses from the loser. There exists a unique Nash equilibrium with positive expenses. In equilibrium, negative relational emotions (but not a positive joy of winning) amplify the effects of cost shifting, and vice versa. Thus negative relational emotions and positive cost shifting have a similar strategic role, and one can be a substitute for the other. If the litigants’ relative advantages are sufficiently balanced, then more cost shifting (or more negative relational emotions) increases total expenses in equilibrium.
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23 July 2022
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Acknowledgements
We acknowledge the comments given by Fabio Araujo, Ted Bergstrom, Subhasish Chowdhury, Richard Cornes, Simona Fabrizi, Luciana Fiorini, Tim Friehe, Simon Grant, Richard Holden, Tim Kam, Shay Lavie, Steffen Lippert, Leandro Magnusson, George Mailath, Rogerio Mazali, Jonathan Nash, Francesco Parisi, Paul Pecorino, Omer Pelled, John Quiggin, Maria Racionero, Martin Richardson, Larry Samuelson, Kathryn Spier, James Taylor, Joshua Teitelbaum, Abraham Wickelgren, Kathy Zeiler and seminar participants at the 2018 Annual Meeting of the American Law and Economics Association, the 2017 Annual Meeting of the Canadian Law and Economics Association, the 2016 Australian Law and Economics Conference, the 2014 Australasian Economic Theory Workshop, the 2014 Econometric Society Australasian Meeting, and workshops at the Australian National University and the Universities of Auckland and Western Australia. We benefited greatly from the insightful comments of an anonymous co-editor and two anonymous reviewers. Chen acknowledges the support of an Australian Government Research Training Program Scholarship. All mistakes are our own responsibility.
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Chen, B., Rodrigues-Neto, J.A. The interaction of emotions and cost-shifting rules in civil litigation. Econ Theory 75, 841–885 (2023). https://doi.org/10.1007/s00199-022-01426-4
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DOI: https://doi.org/10.1007/s00199-022-01426-4