Financially-Constrained Lawyers: An Economic Theory of Legal Disputes

Claudia Landeo and Maxim Nikitin ()

No 2018-3, Working Papers from University of Alberta, Department of Economics

Abstract: Financial constraints reduce the lawyer's ability to file lawsuits and bring cases to trial. As a result, access to justice for victims, pretrial bargaining, and potential injurers' precaution might be affected. We study civil litigation using a model that allows for asymmetric information, financially-constrained lawyers, third-party lawyer lending, and a continuum of plaintiff's types. We contribute to the economic analysis of law by generalizing seminal models of litigation (Bebchuk, 1984, 1988; Katz, 1990), offering the first formal definition of access to justice, and presenting comprehensive social welfare analysis of relevant public policy. We provide complete equilibrium characterization and identify necessary conditions for the existence of the mixed- and pure-strategy PBE. The mixed-strategy equilibrium arises in a state of the world characterized by lawyers facing strong financial constraints. Access to justice is denied to some victims under the mixed-strategy equilibrium. We then study the social welfare effects of policies aimed at relaxing lawyers' financial constraints, and identify a necessary and sufficient condition for a welfare-enhancing effect.

Keywords: Civil Litigation; Access to Justice; Social Welfare; Financially-Constrained Lawyers; Asymmetric Information; Perfect Bayesian Equilibrium; Deterrence; Lawsuits; Settlement; Litigation; Third-Party Lawyer Lending Industry; Third-Party Litigation Funding (search for similar items in EconPapers)
JEL-codes: C70 D82 K41 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2018-02-28
New Economics Papers: this item is included in nep-law and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Financially-constrained lawyers: An economic theory of legal disputes (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:albaec:2018_003

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