Are "Ambulance Chasers" That Bad? Litigation, Lawyer's Advice, and Social Welfare

This article models litigation in signaling games with an imperfectly informed victim and a perfectly informed defendant. I compare a two-agent game and a three-agent extension where the victim can hire a lawyer who is perfectly informed but who pursues a selfish objective in his advice. In particular, a lawyer affects a victim’s information environment in a way that is similar to Bayesian persuasion (Kamenica & Gentzkow, 2011). Overall, this analysis captures some stylized empirical patterns of the legal system, and identifies both the positive and negative welfare effects of lawyers' advice on the number of cases filed and litigated, victim’s trial winning rates, and defendants' safety costs.