I have read and heard anecdotal evidence that litigation in the United States is countercyclical. Usually this is cynically explained by saying that when times are tough everybody is looking to make an extra buck. But of course everybody is looking to make an extra buck when times are good too.
All of business activity relies on relationships that are partially supported by contracts and partially supported by trust. Trust fills in the gaps of incomplete contracts. When the contract is not followed to the letter, your interest in maintaining a healthy relationship smooths things over.
Bad times raise uncertainty about whether there are any gains left from this relationship in the future. This undermines trust and the result is that the courts are called in to fill the gaps.
There are a couple of natural ways to test this theory. First the countercyclical nature of litigation should vary across sectors. Thick markets with relatively anonymous actors should see less impact of economic downturns on the rate of litigation. Also, the effect outlined above is based on the assumption that contracts are written in good times and litigated in bad times. If the downturn is expected to last, then new contracts should tend to be more complete, taking into account the increased appetite for litigation. The result should be less litigation in longer downturns than in shorter ones.
I thank Rosemary for the conversation.
Cheap Talk 
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October 4, 2009 at 11:05 pm
Andrew C
I was glad to read that last paragraph that the countercyclicalality (?) of litigation varies across sectors, and it does so in rather obvious ways. My dad is a corporate bankruptcy attorney, and he is most definitely experiencing an upswing in work, yet he tells me that his firm is doing poor overall because it is heavily made-up of real estate and mergers and acquisitions attorneys. My grandfather is an ambulance-chasing tort attorney. His work does seem to be picking up, but not in any significant way.
It seems to me that these effects would balance out, that there will be enough contracts to litigate over and enough new contracts to write that overall, litigation is not particularly countercyclical.
March 21, 2014 at 7:07 pm
Mathew
I would suggest you to do MBA Finance and join some retpeud concern so that your services can be utilised better. As a Lawyer u have to struggle a lot to come up.References : Was this answer helpful?
October 6, 2009 at 7:56 pm
jhe
I think the way to look at this is that in good times the rate of litigation is suppressed because litigation ends a relationship. In good times the discounted expected value of future opportunities from a relationship is greater than the expected value of the litigation over the perceived injuries and injustices experienced in any relationship. In bad times, not so much. In fact, to the extent that a trading partner might be liquidated, it makes sense to get the value of your claims before others do the same.