A NEW THEORY CONCERNING THE CREDIBILITY AND SUCCESS OF THREATS TO SUE

Negative-expected-value (NEV) suits are ones in which the expected lit igation costs exceed the expected judgment. This article offers a new theory for the credibility and success of plaintiffs with NEV suits. T he theory is based on recognizing that litigation costs are generally not incurred all at once but rather over time; this divisibility of th e litigation process is shown to play a crucial strategic role. The an alysis identifies the conditions under which a plaintiff with an NEV s uit will have a credible threat and succeed in extracting a settlement . it is demonstrated that plaintiffs have credible threats in a much w ider set of cases-including in numerous small-stakes cases-than has be en suggested by prior economic analysis of the subject.