Advantage Defendant: Why Sinking Litigation Costs Makes Negative Expected Value Defenses, but not Negative Expected Value Suits Credible

Warren F. Schwartz, Georgetown
Abraham L. Wickelgren, Northwestern University

Abstract

We revisit Lucian Bebchuk’s (1996) claim that plaintiff’s can use the sequential nature of litigation to extract a positive settlement from a negative expected value suit. We make three claims. First, this result is heavily dependent on the specific bargaining game he uses. Second, in an alternating offer bargaining game, the outside option principle demonstrates that this cost sinking strategy will not allow a negative expected value plaintiff to extract a positive settlement offer. Third, this cost sinking strategy, however, can be effective for a defendant using a negative expected value defense.