Economists are of two minds about the use of courts to manage civil disputes. On the one hand, the threat of litigation makes contracts enforceable and drives tort settlements, thereby minimizing the need for government regulation. On the other, litigation chews up vast resources. Alas, a striking new working paper by Paul Heaton (RAND) and Eric Helland (Claremont McKenna College and RAND) will only muddle the matter a bit more.
Using data from thousands of auto injuries between 1987 and 2002, the two economists estimated that a 10 percent increase in state court budgets leads to a 3 percent increase in the probability that a lawsuit will be filed in any given case. And that potential increase represents a lot of time and money: If all tort claimants behave like parties to auto injury cases, a 10 percent increase in outlays for courts means 60,000 more lawsuits annually. Note, moreover, that easier access to court tilts settlements a bit in favor of plaintiffs. Heaton and Helland estimate that a 10 percent increase in court budgets would raise total settlements by $1 billion annually in auto injury cases alone.
Are more suits good or bad? We’re inclined toward the latter view: Litigation seems to be the last thing America needs more of. But it is very hard to say for sure because every extra case that is filed generates unknown benefits (as a deterrent to injury) along with too-well-known costs.