The Market for Specious Claims

S. Todd Brown (Buffalo) has posted a paper entitled The Market for Specious Claims on SSRN.  It promises to be an interesting application of the adverse selection problem to our favorite subject here at the Mass Tort Litigation Blog!  Here is the abstract:

Few problems are more disruptive to the efficient operation of comprehensive mass tort settlements than over-subscription, which, at times, appears to be fueled primarily by specious claims. In settlements with opt out rights, a flood of claims can generate a market for lemons, with the weakest claims submitting to the settlement and the strongest opting out and seeking recovery at trial or in private settlement. In binding settlements, they may result in a commons problem, requiring dramatic reductions in payment that effectively transfer recoveries from those with intrinsically strong claims to those with weak claims.

This Article evaluates the history of three mass torts where specious claim practices were uncovered and identifies common themes that reflect broader lessons about the potential for over-subscription. In particular, although commentators often focus on the incentives that drive claim recruiting, this Article explains that over-subscription has its origins in claim development incentives, which may be distorted by fixed settlement criteria and encourage practices that lend themselves to specious claim filings. This dynamic is particularly likely to generate specious claim markets for low or negative expected value claims. Moreover, the manner in which this process unfolds presents special difficulties for ethical enforcement and deterrence, suggesting that other mechanisms for controlling specious claim markets may be necessary.

ADL