Narrower Door to Approach the 50%: Cost-benefit-screened Litigation and Plaintiff Win Rate

As it pertains to court cases, the predilection toward a 50% plaintiff win rate is a well-known proposition, first put forward in the Priest-Klein theory (Priest and Klein 1984). Numerous studies have verified this proposition by analyzing the relationship between litigation rates and judgments. However, the question remains as to whether any change in litigation rates, triggered by any factor, would cause the plaintiff win rate to trend towards 50%. The present study aims to contribute to the existing body of knowledge by conducting a theoretical analysis and empirical tests to explore the influencing mechanism of the Priest-Klein theory on judgments. In the theoretical analysis, the mechanism of the litigation selection on the judgment is reformulated by distinguishing between estimation-error-screened litigation and cost-benefit-screened litigation. The former involves lawsuits that prioritize disputes with more uncertain outcomes, resulting in judgments that approximate the 50% plaintiff win rate. In contrast, the latter involves lawsuits that prioritize disputes with more certain outcomes, leading to judgments that deviate significantly from the 50% plaintiff win rate. In the empirical tests, the influence of the cost-benefit-screened litigation on judgments as opposed to the original Priest-Klein theory is verified by taking the cost-benefit ratio of litigation as the observation in China’s commercial lawsuits. This finding serves to improve our understanding of the Priest-Klein theory by elucidating that the decline in litigation probability engendered by the cost-benefit ratio cannot invariably result in a 50% win rate for the plaintiff. JEL classification numbers: K15, K41, P48