Litigation and settlement under judicial agency
AbstractWe model the settlement of a legal dispute when the trial outcome depends on the behavior of a strategically motivated judge. A defendant, who is uninformed about the level of harm that he has caused, makes a take-it-or-leave-it offer to an informed plaintiff. If the parties cannot agree on a settlement and the case goes to trial, the judge decides how much effort to exert in discovering the actual damages. We show that, under very general assumptions, this model exhibits multiple equilibria. In some equilibria, the judge exerts less effort and more cases settle out of court, whereas in others the opposite occurs. We also show that the judge prefers the low effort equilibria with high settlement rate and argue that a “managerial judge” could easily steer the parties towards low effort equilibria. This may be deemed undesirable, since in low-effort equilibria, the terms of the settlement heavily favor the informed plaintiff, and this in turn induces over-investment in ex ante preventive care by the defendant.
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Bibliographic InfoArticle provided by Elsevier in its journal International Review of Law and Economics.
Volume (Year): 32 (2012)
Issue (Month): 3 ()
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Web page: http://www.elsevier.com/locate/irle
Litigation; Settlement; Judicial agency; Managerial judges;
Other versions of this item:
- Levent Koçkesen & Murat Usman, 2011. "Litigation and Settlement under Judicial Agency," KoÃ§ University-TUSIAD Economic Research Forum Working Papers 1121, Koc University-TUSIAD Economic Research Forum.
- K00 - Law and Economics - - General - - - General (including Data Sources and Description)
- K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
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