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Dissertation/Thesis Abstract

The economics of pretrial discovery: Theory, empirical analysis, and historical impact
by Shepherd, George B., Ph.D., Stanford University, 2009, 207; 3382952
Abstract (Summary)

Pretrial discovery, the formal process by which litigants exchange information before trial, has had profound impacts. First established in federal courts in 1938, it in many cases consumes the majority of legal expenses and lawyers' time. Using economics, this dissertation examines discovery theoretically, empirically, and historically.

After the introduction in Chapter 1, Chapter 2 presents a theoretical model that assumes that a litigant's probability of victory depends completely on his relative litigation effort, such as the amount of discovery that he seeks, compared to his adversary's. In addition, the model includes both litigation devices' cost and each litigant's estimates of the case's stakes. Thus, the model directly explores the litigants' strategic interaction.

Five results emerge. First, additional litigation effort may not produce fairer results: the model suggests that, regardless of a case's merits, a litigant with much at stake may use litigation devices to grind down the adversary. Second, under the American no-fee-shifting rule, each litigant will spend on litigation activity at most one-quarter of the stakes. Third, litigants will not generally conduct tit-for-tat litigation. A litigant's desired amount of litigation activity will be lowest when the adversary conducts either a little or a lot of activity; the litigant's amount will be highest when the adversary conducts a moderate amount. Fourth, each party will litigate most intensively when the adversary's stakes and per-unit costs are similar to the litigant's; the litigant does less when the adversary's stakes and costs are larger or smaller than his own. Fifth, fee-shifting creates incentives for a litigant to expand spending hugely, even beyond the stakes.

Chapter 3 examines litigants' discovery behavior empirically. Using data from an interview survey of both attorneys in 369 federal civil cases, I identify factors that determine cases' discovery levels. Among the main results is, first, that plaintiffs choose an amount of discovery by examining a case's underlying fundamentals, such as the amount at stake. In contrast, the defendant does not rely on fundamentals; his discovery amount instead mirrors the plaintiffs amount. Second, the plaintiff and defendant respond to their adversary's apparently excessive discovery requests differently. If the plaintiff appears to have conducted excessive discovery, then the defendant conducts more discovery than she otherwise would have. In contrast, the plaintiff responds to the defendant's apparent discovery aggression by conducting less discovery. Third, the nature of an attorney's fee arrangement is correlated with the attorney's discovery behavior.

In the middle of the 20th century, the legal profession in the United States experienced two important developments: expanded pretrial discovery followed by the emergence of hourly billing as the primary method of calculating attorney's fees. Chapter 4 shows that the two changes were linked. My theoretical economic model describes the conditions under which client and lawyer will choose either fixed-fee or hourly billing. The model suggests that the optimal contract will be influenced by a balancing of efficient risk distribution and limiting moral hazard. I then closely examine the historical record.

Both the model and history suggest that the profession was pushed to hourly billing by economic pressures that resulted from the introduction of rules that permitted pretrial discovery. By creating unbearable cost uncertainty for lawyers who handled litigation matters, discovery forced lawyers, and surprisingly their institutional clients, to demand that the traditional forms of fixed fees be abandoned in favor of hourly billing.

Indexing (document details)
Advisor: Noll, Roger G.
School: Stanford University
School Location: United States -- California
Source: DAI-A 70/10, Dissertation Abstracts International
Subjects: Law, Economics
Keywords: Discovery, Hourly billing, Legal services, Pretrial discovery
Publication Number: 3382952
ISBN: 978-1-109-45038-5
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