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Litigation and the Pareto principle

Joseph M. JuranA little more than a century ago, Italian social scientist Vilfredo Pareto observed that 80 percent of the land in Italy was the property of 20 percent of the population. Furthermore, this 80/20 relationship works fractally: that is, 80 percent of the land within that 80 percent (64 percent of the land in Italy) was the property of 20 percent of that 20 percent (4 percent).

It was a Romanian-American business consultant, Joseph Juran, pictured to the left, who generalized this to the principle of "the vital few." Twenty percent of the causes are generally responsible for 80 percent of the effects; your 20 percent most enthusiastic or wealthiest customers will buy 80 percent of your product, and so forth, he wrote in the middle of the last century.

The Pareto principle, in its post-Juran form, has obvious affinities with fractal geometry. The 80/20 pattern keeps recurring the further down you dig.

I'm beginning to suspect the principle applies in the world of litigation. As a first approximation, I would guess, in any class of people who might bring a certain variety of lawsuit, 20 percent are responsible for 80 percent of the filings. Further, 20 percent of those filers are probably responsible for 64 percent of the whole, just as in the land patterns Pareto noted.

This suspicion came to me while reading a study of a peculiar and very specialized sort of litigation: distressed debt lawsuits against sovereign nations as bond issuers.

A sovereign's bond default is not a 100-year storm. There are a regular supply of defaults. Sometimes these defauylts lead to orderly restructurings, sometimes not. when the defaulting nation restructures its debts, there are sometimes hold-outs, who litigate in that or (more likely) another nation's courts for the value of the original pre-default bond, declining whatever their rights would be under the restructuring plan. This situationhapens often enough, as I say, to have created around itself a unique body of law.

But ... what percentage of restructurings result in litigation? And, when litigation happens, what percentage of the debtors make up the ranks of the hold outs?

In these cases, it seems, something analogous to the Pareto principle seems to  be at work.
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