In this paper, Professor Landeo and her co-author, Professor Nikitin, study civil litigation using a strategic model that allows for asymmetric information, financially-constrained lawyers, third-party lawyer lending, and a continuum of plaintiff's types. Their work provides methodological contributions to the law and economics literature by generalizing seminal models of legal disputes. The authors present formal analysis of the three mutually-exclusive perfect Bayesian equilibrium classes, mixed-strategy, pure-strategy, and boundary equilibria, and identify necessary conditions for the existence of each class. Their results suggest that the mixed-strategy class arises in a state of the world characterized by lawyers facing strong financial constraints or defendants facing a high threat of frivolous lawsuits. Across equilibrium classes, accidents do occur and bargaining impasse is observed. Access to justice is denied to some true victims under the mixed-strategy and boundary equilibria.
The authors then extend their model to study the social welfare effects of policies aimed at relaxing lawyers' financial constraints, and establish sufficient conditions for a welfare-reducing effect: seemingly good policies may be welfare reducing if the positive impact on access to justice is weak and the potential injurers are over-deterred.
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The authors then extend their model to study the social welfare effects of policies aimed at relaxing lawyers' financial constraints, and establish sufficient conditions for a welfare-reducing effect: seemingly good policies may be welfare reducing if the positive impact on access to justice is weak and the potential injurers are over-deterred.
For more on this research, see the full study