Advantage Defendant: Why Sinking Litigation Costs Makes Negative-Expected-Value Defenses but Not Negative-Expected-Value Suits Credible

We revisit Lucian Bebchuk's 1996 claim that plaintiffs 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. (c) 2009 by The University of Chicago. All rights reserved..