The Effect of Malice on Retainers and Pleading Choices

Abstract

In a standard model of nuisance lawsuits, we consider a plaintiff who obtains malice utility from the loss of a defendant. Confirming our intuitions from casual observations in reality, we find that a more malicious plaintiff is more likely to file a nuisance suit in equilibrium. We also find that the plaintiff’s equilibrium filing cost decreases in malice whereas the equilibrium answering cost and settlement value do not depend on malice. When we allow the defendant to pay a retainer before the plaintiff’s filing decision, we find that the defendant is willing to use the retainer option as long as it is not too costly. Thus, the retainer option is effective in deterring a nuisance lawsuit, although the defendant must spend a larger retainer as the plaintiff becomes more malicious.