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Litigation and Selection with Correlated Two-Sided Incomplete Information

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  • Daniel Klerman
  • Yoon-Ho Alex Lee
  • Lawrence Liu

Abstract

This article explores the selection of disputes for litigation in a setting with two-sided incomplete information and correlated signals. The models analyzed here suggest that Priest and Klein’s conclusion that close cases are more likely to go to trial than extreme cases remains largely valid when their model is interpreted as involving correlated, two-sided incomplete information and is updated (i) to incorporate take-it-or-leave-it offers or the Chatterjee–Samuelson mechanism, (ii) to take into account the credibility of the plaintiff’s threat to go to trial, and (iii) to allow parties to make sophisticated, Bayesian inferences based on knowledge of the distribution of disputes. On the other hand, Priest and Klein’s prediction that the plaintiff will win 50% of litigated cases is sensitive to bargaining and parameter assumptions.

Suggested Citation

  • Daniel Klerman & Yoon-Ho Alex Lee & Lawrence Liu, 2018. "Litigation and Selection with Correlated Two-Sided Incomplete Information," American Law and Economics Review, American Law and Economics Association, vol. 20(2), pages 382-459.
    • Handle: RePEc:oup:amlawe:v:20:y:2018:i:2:p:382-459.
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    File URL: http://hdl.handle.net/10.1093/aler/ahy005
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    Cited by:

    1. Jimeno Juan F. & Mora-Sanguinetti Juan S. & Martínez-Matute Marta, 2020. "Employment protection legislation, labor courts, and effective firing costs," IZA Journal of Labor Economics, Sciendo & Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 9(1), pages 1-26, January.
    2. Baharad, Roy & Cohen, Chen & Nitzan, Shmuel, 2022. "Litigation with adversarial efforts," International Review of Law and Economics, Elsevier, vol. 69(C).
    3. Cédric Argenton & Xiaoyu Wang, 2023. "Litigation and settlement under loss aversion," European Journal of Law and Economics, Springer, vol. 56(2), pages 369-402, October.
    4. Dari-Mattiacci, Giuseppe & Saraceno, Margherita, 2020. "Fee shifting and accuracy in adjudication," International Review of Law and Economics, Elsevier, vol. 63(C).
    5. Argenton, Cedric & Wang, Xiaoyu, 2020. "Litigation and Settlement under Loss Aversion," Other publications TiSEM b6c48abc-9b47-4c3b-848b-3, Tilburg University, School of Economics and Management.
    6. He, Leshui, 2020. "A theory of pre-filing settlement and patent assertion entities," International Journal of Industrial Organization, Elsevier, vol. 70(C).

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