Recent development in the economics of litigation

Presented by ANU College of Business & Economics

This lecture explores recent developments in civil litigation using frameworks from economics and finance. There are many ways that private parties can gamble or speculate on civil litigation.

First, disputing parties can and do trade in the stock of their rivals, taking either long or short positions. For example, private equity investors have brought patent challenges against U.S. pharmaceutical companies while allegedly shorting the stock of their targets.

Second, litigants sometimes write secret contracts with each other before trial, contracts that override or replace any judgment or jury award. For instance, high-low agreements, which place a ceiling and a floor the future damage award, eliminate the plaintiff's risk of getting nothing and the defendant's risk of a runaway jury award. Interestingly, these contracts are featured in several state-sponsored alternative dispute resolution programs.

Third, with increasing frequency, litigants are partnering with third-party investors whose stakes are securitized by the outcome of litigation. Private contracting clearly impacts the incentives of the litigants to bring lawsuits, settle them, and spend on litigation. These private arrangements may or may not be in the interest of society at large.

Kathryn E. Spier is the Domenico De Sole Professor of Law at the Harvard Law School and President Emeritus of the American Law and Economics Association. She received her PhD from MIT in 1989 and her BA in mathematics and economics from Yale in 1985.

Professor Spier is currently serving as a co-editor of the RAND Journal of Economics, an associate editor of the American Economic Review, and is a Research Associate in the Law and Economics Group of the National Bureau of Economic Research.

She has published extensively in the areas of law and economics and industrial organization. Her areas of interest include the economics of litigation, contracts, tort law, antitrust, and business organization.