The Impact of Frivolous Lawsuits on Deterrence: Do They Have Some Redeeming Value?

The literature on frivolous lawsuits has focused on litigation costs and the optimal settlement-trial decision of defendants, but has not examined how they affect the decisions of potential injurers. This paper asks whether there are circumstances under which frivolous suits might actually increase social welfare by inducing parties engaged in risk activities to limit the scale, and improve the safety, of those activities. The reason this is possible is that in a costly legal system, injurers will generally underinvest in safety and overengage in the activity. The fact that some uninjured plaintiffs succeed in obtaining settlements may therefore affect the care and activity choices of injurers in a socially valuable way. In light of these conclusions, the paper goes on to examine the desirability of various policies aimed at curbing frivolous litigation.