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Deterrence, Lawsuits, and Litigation Outcomes Under Court Errors

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  • Claudia M. Landeo
  • Maxim Nikitin
  • Scott Baker

Abstract

This article presents a strategic model of liability and litigation under court errors. Our framework allows for endogenous choice of level of care and endogenous likelihood of filing and disputes. We derive sufficient conditions for a unique universally divine mixed-strategy perfect Bayesian equilibrium under low court errors. In this equilibrium, some defendants choose to be grossly negligent; some cases are filed; and some lawsuits are dropped, some are resolved out of court, and some go to trial. We find that court errors in the size of the award, as well as damage caps and split awards, reduce the likelihood of trial but increase filing and reduce the deterrence effect of punitive damages. We derive conditions under which the adoption of the English rule for allocating legal costs reduces filing. Copyright 2007, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/jleo/ewm003
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Bibliographic Info

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

Volume (Year): 23 (2007)
Issue (Month): 1 (April)
Pages: 57-97

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Handle: RePEc:oup:jleorg:v:23:y:2007:i:1:p:57-97

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Cited by:
  1. Levent Koçkesen & Murat Usman, 2011. "Litigation and Settlement under Judicial Agency," Koç University-TUSIAD Economic Research Forum Working Papers 1121, Koc University-TUSIAD Economic Research Forum.
  2. Landeo, Claudia & Nikitin, Maxim & Izmalkov, Sergei, 2012. "Playing against an Apparent Opponent: Incentives for Care, Litigation, and Damage Caps under Self-Serving Bias," Working Papers 2012-15, University of Alberta, Department of Economics, revised 01 Oct 2012.
  3. Landeo, Claudia, 2009. "Tort Reform, Disputes and Belief Formation," Working Papers 2009-12, University of Alberta, Department of Economics.
  4. Boyer, Marcel & Porrini, Donatella, 2011. "The impact of court errors on liability sharing and safety regulation for environmental/industrial accidents," International Review of Law and Economics, Elsevier, vol. 31(1), pages 21-29, March.
  5. Landeo, Claudia M., 2009. "Cognitive coherence and tort reform," Journal of Economic Psychology, Elsevier, vol. 30(6), pages 898-912, December.

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