Working Paper BETA #2018-03

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Title : Legal Advertising and Frivolous Lawsuits

Author(s) : Yannick Gabuthy, Eve-Angéline Lambert

Abstract : Following a recent wave of deregulation, lawyers now use a large variety of media to advertise their services. A common argument against this increasing reliance on advertising is that it might stir-up frivolous lawsuits. In this article, we investigate the theoretical relevance of this argument by developing an asymmetric information game of litigation where the likelihood of accident and the number of lawsuits are endogenous. The main result shows that this stirring-up effect does not necessarily occur in equilibrium since the impact of advertising on meritless claims results from complex strategic effects arising in the litigation game. In the same way, the welfare analysis highlights that advertising may increase or decrease the social cost of accidents. These results imply that the recent trend toward liberalization of legal advertising should not necessarily be considered as a threat to the efficiency of the tort system.

Key-words : Litigation, Advertising, Deterrence, Frivolous lawsuits.

JEL Classification : K13, K41, M37