The Economics of Litigation

All substantive areas of law have a common concern with the processes by which legaldisputes get resolved. The existing corpus of economic literature on courts is modest, but understanding the litigation process has become important, as courts intrude more forcefully upon resource allocation. The current cost of trials is unprecedented, although difficult to quantify.This article consists of four sections. Section 1 focuses on the application of economictools to the study of courts and outlines the chronology of a legal dispute. In our framework, legal disputes are resolved at various stages of a sequential decision-making process in which parties have limited information and act in their own self-interest. Section 2 reviews the predictions obtained from modeling these decisions, and Section 3 discusses their normative significance. Section 4 concludes.