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A unified model of settlement and trial expenditures: The Priest–Klein model extended

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  • Poitras, Marc
  • Frasca, Ralph
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    Abstract

    Settlement and trial expenditures are crucially interrelated. The literature on settlement, however, takes no account of models of trial. In this paper, we develop a unified model of settlement and trial expenditures. We do this by discarding the usual assumption of settlement models that trial costs are constant across cases. Instead, we follow the literature on trial by permitting trial costs to vary with the legal merit of the plaintiff's case. Our approach can be used to extend standard models of settlement such as the well-known Priest–Klein model as well as models based on asymmetric information. As a demonstration, we extend the Priest–Klein model and generally overturn that model's canonical results. In particular, we show that even in a fully symmetric model, predicted win rates at trial can deviate substantially from 50 percent. Furthermore, win rates will vary in response to legal reforms that shift the decision standard.

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    Bibliographic Info

    Article provided by Elsevier in its journal International Review of Law and Economics.

    Volume (Year): 31 (2011)
    Issue (Month): 3 (September)
    Pages: 188-195

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    Handle: RePEc:eee:irlaec:v:31:y:2011:i:3:p:188-195

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    Web page: http://www.elsevier.com/locate/irle

    Related research

    Keywords: Trial expenditures Settlement Case selection Priest-Klein Model;

    References

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    1. Siegelman, Peter & Waldfogel, Joel, 1999. "Toward a Taxonomy of Disputes: New Evidence through the Prism of the Priest/Klein Model," The Journal of Legal Studies, University of Chicago Press, vol. 28(1), pages 101-30, January.
    2. Katz, Avery, 1988. "Judicial decisionmaking and litigation expenditure," International Review of Law and Economics, Elsevier, vol. 8(2), pages 127-143, December.
    3. Joel Waldfogel, 1998. "Reconciling Asymmetric Information and Divergent Expectations Theories of Litigation," NBER Working Papers 6409, National Bureau of Economic Research, Inc.
    4. Farmer, Amy & Pecorino, Paul, 1999. " Legal Expenditure as a Rent-Seeking Game," Public Choice, Springer, vol. 100(3-4), pages 271-88, September.
    5. Priest, George L, 1987. "Measuring Legal Change," Journal of Law, Economics and Organization, Oxford University Press, vol. 3(2), pages 193-225, Fall.
    6. Waldfogel, Joel, 1995. "The Selection Hypothesis and the Relationship between Trial and Plaintiff Victory," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 229-60, April.
    7. George L. Priest & Benjamin Klein, 1984. "The Selection of Disputes for Litigation," The Journal of Legal Studies, University of Chicago Press, vol. 13(1), pages 1-56, January.
    8. Shavell, Steven, 1996. "Any Frequency of Plaintiff Victory at Trial Is Possible," The Journal of Legal Studies, University of Chicago Press, vol. 25(2), pages 493-501, June.
    9. Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn.
    10. Farmer, Amy & Pecorino, Paul, 2000. "Does jury bias matter?," International Review of Law and Economics, Elsevier, vol. 20(3), pages 315-328, September.
    11. Siegelman, Peter & Donohue, John J, III, 1995. "The Selection of Employment Discrimination Disputes for Litigation: Using Business Cycle Effects to Test the Priest-Klein Hypothesis," The Journal of Legal Studies, University of Chicago Press, vol. 24(2), pages 427-62, June.
    12. Kobayashi, Bruce H. & Lott, John Jr., 1996. "In defense of criminal defense expenditures and plea bargaining," International Review of Law and Economics, Elsevier, vol. 16(4), pages 397-416, December.
    13. Holger Sieg, 2000. "Estimating a Bargaining Model with Asymmetric Information: Evidence from Medical Malpractice Disputes," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 1006-1021, October.
    14. Hughes, James W & Snyder, Edward A, 1989. "Policy Analysis of Medical Malpractice Reforms: What Can We Learn from Claims Data?," Journal of Business & Economic Statistics, American Statistical Association, vol. 7(4), pages 423-31, October.
    15. Hause, John C, 1989. "Indemnity, Settlement, and Litigation, or I'll Be Suing You," The Journal of Legal Studies, University of Chicago Press, vol. 18(1), pages 157-79, January.
    16. Mark Gradstein, 1995. "Intensity Of Competition, Entry And Entry Deterrence In Rent Seeking Contests," Economics and Politics, Wiley Blackwell, vol. 7(1), pages 79-91, 03.
    17. Wittman, Donald, 1988. "Dispute Resolution, Bargaining, and the Selection of Cases for Trial: A Study of the Generation of Biased and Unbiased Data," The Journal of Legal Studies, University of Chicago Press, vol. 17(2), pages 313-52, June.
    18. Hylton, Keith N, 1993. "Asymmetric Information and the Selection of Disputes for Litigation," The Journal of Legal Studies, University of Chicago Press, vol. 22(1), pages 187-210, January.
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