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Settlement with Multiple Plaintiffs: The Role of Insolvency

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  • Kathryn E. Spier

Abstract

This article considers settlement negotiations between one defendant and two plaintiffs when the defendant's assets are limited. Bargaining externalities exist: the acceptance of a settlement offer by one plaintiff may either increase or decrease the other plaintiff's expected payoff at trial. Negotiations fail when the two plaintiffs bargain independently of one another and their payoffs at trial are sufficiently correlated. Collective bargaining, where the plaintiffs accept offers that are in their mutual interest, leads to higher private and social welfare. For intermediate degrees of correlation, collective bargaining shifts bargaining surplus from the plaintiffs to the defendant. For low degrees of correlation, collective bargaining shifts surplus from the defendant to the plaintiffs. (Risk dominance is used to refine the set of equilibria in this last case.) The desirability of plaintiff opt-outs, limited-fund class actions under Rule 23(b)(1)(B), and Chapter 11 bankruptcy law are discussed. Copyright 2002, Oxford University Press.

Suggested Citation

  • Kathryn E. Spier, 2002. "Settlement with Multiple Plaintiffs: The Role of Insolvency," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 18(2), pages 295-323, October.
    • Handle: RePEc:oup:jleorg:v:18:y:2002:i:2:p:295-323
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    Citations

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    Cited by:

    1. Thomas J. Miceli & Kathleen Segerson, 2005. "Do Exposure Suits Produce a "Race to File"? An Economic Analysis of a Tort for Risk," RAND Journal of Economics, The RAND Corporation, vol. 36(3), pages 613-627, Autumn.
    2. Ferrer, Rosa, 2010. "Breaking the law when others do: A model of law enforcement with neighborhood externalities," European Economic Review, Elsevier, vol. 54(2), pages 163-180, February.
    3. Giorgio Rampa & Margherita Saraceno, 2014. "Beliefs and Precedent: The Dynamics of Access to Justice," DEM Working Papers Series 084, University of Pavia, Department of Economics and Management.
    4. Guerra Alice & Luppi Barbara & Parisi Francesco, 2019. "Standards of Proof and Civil Litigation: A Game-Theoretic Analysis," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 19(1), pages 1-19, January.
    5. Moller, Marc, 2007. "The timing of contracting with externalities," Journal of Economic Theory, Elsevier, vol. 133(1), pages 484-503, March.
    6. Benjamin Ho & Elaine Liu, 2011. "Does sorry work? The impact of apology laws on medical malpractice," Journal of Risk and Uncertainty, Springer, vol. 43(2), pages 141-167, October.
    7. Friehe, Tim & Pham, Cat Lam & Miceli, Thomas J., 2018. "Law enforcement in a federal system: Endogenous timing of decentralized enforcement effort," International Review of Law and Economics, Elsevier, vol. 56(C), pages 134-141.
    8. Michelle J. White, 2002. "Explaining the Flood of Asbestos Litigation: Consolidation, Bifurcation, and Bouquet Trials," NBER Working Papers 9362, National Bureau of Economic Research, Inc.
    9. Daniel Carvell & Janet Currie & W. Bentley MacLeod, 2012. "Accidental death and the rule of joint and several liability," RAND Journal of Economics, RAND Corporation, vol. 43(1), pages 51-77, March.
    10. Michelle J. White, 2006. "Asbestos Litigation: Procedural Innovations and Forum Shopping," The Journal of Legal Studies, University of Chicago Press, vol. 35(2), pages 365-398, June.
    11. Christopher C. Klein, 2007. "Anticompetitive Litigation and Antitrust Liability," Working Papers 200713, Middle Tennessee State University, Department of Economics and Finance.
    12. Farmer, Amy & Pecorino, Paul, 2017. "Litigation with judgment proof defendants," International Review of Law and Economics, Elsevier, vol. 49(C), pages 1-9.
    13. Nakkas Alper, 2010. "Settling with Multiple Litigants," Review of Law & Economics, De Gruyter, vol. 6(1), pages 125-144, June.
    14. Berg, Nathan & Kim, Jeong-Yoo, 2018. "Plea bargaining with multiple defendants and its deterrence effect," International Review of Law and Economics, Elsevier, vol. 55(C), pages 58-70.
    15. Thomas J. Miceli & Kathleen Segerson, 2004. "A Tort for Risk and Endogenous Bankruptcy," Working papers 2004-24, University of Connecticut, Department of Economics.
    16. Yeon-Koo Che & Kathryn E. Spier, 2008. "Exploiting Plaintiffs through Settlement: Divide and Conquer," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(1), pages 4-23, March.

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