Following its landmark decisions in Bell Atlantic v. Twombly and Ashcroft v. Iqbal, the Supreme Court allows federal judges to dismiss cases when the plaintiff’s allegations are conclusory or implausible, thereby increasing the judges’ discretionary power in pleading stages of litigation. Using a stylized litigation model, I find the conditions under which the ruling improves upon litigation outcomes by simultaneously raising deterrence and reducing litigation costs and error costs. In particular, I demonstrate the ways in which the ruling’s effect depends on the correlation between the potential injurers’ primary behavior and the strength of cases filed at trial courts.
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Acknowledgements I’m grateful to Dongryul Lee, two anonymous referees, and participants in various conferences for their valuable comments. All remaining errors are my own. This work was supported by the Yonsei University Future-leading Research Initiative of 2017 (2017-22-0123).
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All Science Journal Classification (ASJC) codes
- Business and International Management
- Economics and Econometrics