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Miceli, Thomas J. --- "The Social versus Private Incentive to Sue" [2012] ELECD 104; in Sanchirico, William Chris (ed), "Procedural Law and Economics" (Edward Elgar Publishing, 2012)

Book Title: Procedural Law and Economics

Editor(s): Sanchirico, William Chris

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781847208248

Section: Chapter 16

Section Title: The Social versus Private Incentive to Sue

Author(s): Miceli, Thomas J.

Number of pages: 15

Extract:

16 The social versus private incentive to sue
Thomas J. Miceli


1. Introduction
The economic theory of tort law is based on the idea that the threat of
liability provides potential injurers (those engaged in risky activities)
with efficient incentives to take care to avoid accidents by forcing them to
internalize the risk that their behavior creates.1 Unlike direct regulation
or externality taxes, however, liability is a private remedy that can only be
imposed if accident victims are willing to file suit to seek compensation.
Early models ignored the cost of litigation and therefore sidestepped the
impact of legal costs, both on the private incentive to sue, and on the social
value of lawsuits as a means of internalizing harm.
Shavell (1982) was the first to explicitly compare the private and the
social value of lawsuits in a costly legal system.2 He pointed out that,
while the private value of a suit depends solely on a plaintiff's comparison
of the payment he or she expects to receive at trial with the cost of filing
suit, the social value depends on the extent to which lawsuits induce the
defendant to undertake socially desirable accident prevention. A key
finding of his analysis was that there is no necessary connection between
these two values. That is, a suit may be privately valuable but not socially
valuable, or the reverse may be true. As a result, in an unrestricted legal
system, there may be either too much or too little litigation ...


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