Essays on Civil Litigation and Contest Theory

Abstract

This thesis primarily develops novel game-theoretic tools, and applies these tools to study civil litigation in common law jurisdictions — the process through which a private plaintiff seeks judicial remedies against a private defendant.

First, this thesis models civil litigation as a simultaneous-move contest between two litigants, each of whom exerts costly efforts to maximize her monetary payoff. A success function describes the litigants' respective probabilities of success based on their efforts and exogenous relative advantages. Instead of having a functional form, the success function satisfies general and intuitive assumptions which capture frequently-used functional forms. Another generalization is the cost-shifting rule, which allows the winner to recover an exogenous proportion of her litigation costs from the loser. There exists a unique Nash equilibrium with positive efforts. In equilibrium, more cost shifting makes the outcome of the case more predictable, but typically increases the litigants' collective expenditure.

Second, further developing the litigation game, this thesis allows monetary and emotional variables to motivate a plaintiff and a defendant to exert costly efforts; the emotional variables capture their relational emotions toward each other, and a non-monetary joy of winning. In equilibrium, negative relational emotions (but not positive joy of winning) amplify the effects of cost shifting. Negative relational emotions increase the equilibrium relative effort and probability of success of the more advantageous litigant.

The novel tools developed to study litigation have broader implications. Generalizing the litigation games is a contest game of complete information, in which two players simultaneously spend to compete for a prize. They have potentially different probability-of-success functions and spillovers. Each success function satisfies general and intuitive assumptions without having a particular functional form. Applications of this game capture optimism and pessimism in military conflicts, and asymmetric R&D contests.

Finally, in addition to litigation efforts and costs, the great variety of legal remedies affects substantive behaviors. This thesis will reveal that, when private actions produce social harm, the actor has incentives to take a socially optimal action if she owes liabilities that optimize externalities. The proposed theory of externalities optimization generalizes the existing theory of externalities internalization, and explains apparently-unrelated rules that optimize incentives when complete internalization fails. Illustrating the proposed theory is an innovative model in which the actor owes a restitutionary liability to disgorge some of her private and a liability to compensate for some of the social harm.