An Economic Analysis of Check Bounce Cases : In India Check Bounce | Page 8

1. V = Value of Judgement
2. p = Probability of judgement for plaintiff at trial
If p would be equal for both the Plaintiff and the Defendant, and also v is same for both, then suits
would never be filed in the first place.
It is possible to consider the estimate of the probability for the plaintiff: Pp and the estimate of the
probability for the defendant Pd
3. x = V Pp
As a result you can have different outcomes and different probabilities for each
It is then possible to use a decision tree to obtain an idea of x
4. If x > Cp then the plaintiff will file and sue; whereas a situation where x < Cp you will not pur-
sue litigation.
5. Hence one can conclude from the above that, if Pp > Cp / V you have a credible threat to sue.
6. Cp are not exogenous but endogenous, hence the plaintiff must pre-decide how much time and
effort he/she wants to invest in the lawsuit. Assuming that the litigation investments made by the
plaintiff and defendant, Cp and Cd, respectively, affect the plaintiff’s future recovery at trial x(Cp,
Cd). Hence a suit will be filed if:
x(Cp, Cd) - Cp > 0
The private decisions of the plaintiff and the defendant to invest time and money in a lawsuit are
not generally aligned with the interests of society as a whole. The plaintiff might litigate too often,
of the benefit for bringing a suit is not too large, then the problematic situation is the same, in such
a case it would be beneficial if x was lowered or Cp increased.
SETTLEMENT THEORY
The total cost of litigation Cp + Cd is a deadweight loss assuming that both the parties will have to
pay for these costs and cannot recover them. The plaintiff and the defendant can typically avoid this
loss through a private agreement to end the dispute before the litigation costs are incurred. The set-
tlement must be compromised between (x - Cp) and (x + Cp) for a settlement to happen in which
both the parties have a same estimated cost of litigation (x) is same for both the parties.
1. Maximum Defendant is willing to pay:
MaxOffer = Pd V + Cd
2. Minimum Plaintiff is willing to Accept:
MinAccept = Pp V - Cp > 0