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Settlement with Multiple Plaintiffs: The Role of Insolvency

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  • Kathryn E. Spier
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    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.

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    Bibliographic Info

    Article provided by Oxford University Press in its journal The Journal of Law, Economics, and Organization.

    Volume (Year): 18 (2002)
    Issue (Month): 2 (October)
    Pages: 295-323

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    Handle: RePEc:oup:jleorg:v:18:y:2002:i:2:p:295-323

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    Cited by:
    1. Thomas J. Miceli & Kathleen Segerson, 2001. "Do Exposure Suits Produce a 'Race to File'? An Economic Analysis of a Tort for Risk," Working papers 2002-42, University of Connecticut, Department of Economics, revised Jun 2004.
    2. Christopher C. Klein, 2007. "Anticompetitive Litigation and Antitrust Liability," Working Papers 200713, Middle Tennessee State University, Department of Economics and Finance.
    3. 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.
    4. 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.
    5. Che, Yeon-Koo & Spier, Kathryn, 2007. "Exploiting Plaintiffs Through Settlement: Divide and Conquer," MPRA Paper 6104, University Library of Munich, Germany.
    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. 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, 03.
    8. Moller, Marc, 2007. "The timing of contracting with externalities," Journal of Economic Theory, Elsevier, vol. 133(1), pages 484-503, March.

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