Our civil liability system affords numerous defenses against every single violation of the law. Against every single claim raised by the plaintiff, the defendant can assert two or more defenses each of which gives him an opportunity to win the case. As a result, when a court erroneously strikes out a meritorious defense, it might still keep the defendant out of harm’s way by granting him another defense. Rightful plaintiffs, on the other hand, must convince the court to deny each and every defense asserted by the defendant. Any rate of adjudicative errors—random and completely unbiased—consequently increases the prospect of losing the case for meritorious plaintiffs while decreasing it for defendants. This pro-defendant bias forces plaintiffs to settle suits below their expected value. Worse yet, defendants can unilaterally reduce the suit’s expected value and extort a cheap settlement from the plaintiff through a strategic addition of defenses. We uncover and analyze this problem and its distortionary effect on settlements and primary behavior. Subsequently, we develop three alternative solutions to the problem and evaluate their pros and cons.
Available at: http://works.bepress.com/alex_stein/54/