An Integrated Theory of Litigation and Legal Standards
Documento de Trabajo IE-PUC, N° 535, 2020
Abstract: I propose an integrated understanding of litigation and legal standards that allows us to answer key questions in the functioning of common law legal systems: When do substantive trials occur?; does society face too many or too few of these trials?; and can legal standards be used to correct a potentially inefficient frequency of litigation? I characterize the dynamics of substantive trials and predict their occurrence on an infinite horizon. I show, for three reasons, that private and socially optimal litigation frequencies are not equal, identifying corrections. I also derive state contingent and non-contingent optimal standards, and discuss policy implications.
Keywords: Standard of effort, substantive trials, frequency of litigation, dynamic litigation, common law courts, negligence
JEL Code: K10, K40, K41