Bebchuck & Klement on Negative Value Suits

Lucian Bebchuck (Harvard) and Alon Klement (Radzyner School of Law & B.U.) have posted an encyclopedia entry on Negative Value Suits on SSRN. Here is the abstract:

We review the literature on negative-expected-value suits (NEV suits) –suits in which the plaintiff would obtain a negative expected returnfrom pursuing the suit all the way to judgment. We discuss alternativetheories as to why, and when, plaintiffs with NEV suits can extract apositive settlement amount. In particular, we explain how such aplaintiff can extract a positive settlement due (i) asymmetry ofinformation between the parties, (ii) divisibility of the plaintiff’slitigation costs, (iii) upfront costs that the defendant must incurbefore the plaintiff incurs any costs; (iv) expectation that thearrival of information during the course of the litigation may turn thesuit into a positive-expected-value one, (5) reputation that enablesthe plaintiff to bind itself to going to trial if the defendant refusesto settle; or (6) the plaintiff’s having a contingency fee or retainerarrangement with its lawyer.

ADL