Trial incentives in sequential litigation

Abstract

We analyze when and why trials can emerge in equilibrium when a defendant may face future plaintiffs. An initial trial serves as an experiment that the defendant can run to induce subsequent potential plaintiffs to learn about their chances of winning. The initial case may go to trial when a favorable trial outcome for the defense can deter potential future plaintiffs from filing lawsuits. Possible future meritless lawsuits further raise the attraction of an initial trial. We also derive the impact of the plaintiff's bargaining power and the heterogeneity in the body of future plaintiffs.