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Informational Externalities in Settlement Bargaining: Confidentiality and Correlated Culpability

Author

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  • Andrew F. Daughety
  • Jennifer F. Reinganum

Abstract

We explore informational externalities that arise when multiple plaintiffs are harmed by the behavior or product of a single defendant. An early plaintiff is likely to raise the awareness of a later plaintiff, and the later plaintiff will be able to learn something about the defendant's culpability by observing the disposition of the early suit: the presence of an early plaintiff provides a benefit to a later plaintiff. The presence of the later plaintiff also confers a potential benefit on the early plaintiff: the early plaintiff has the opportunity to charge the defendant for controlling the flow of information (e.g., through confidential settlement).

Suggested Citation

  • Andrew F. Daughety & Jennifer F. Reinganum, 2002. "Informational Externalities in Settlement Bargaining: Confidentiality and Correlated Culpability," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 587-604, Winter.
    • Handle: RePEc:rje:randje:v:33:y:2002:i:winter:p:587-604
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    Citations

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    Cited by:

    1. Vu Duy, 2021. "To Settle or to Fight to the End? Case-level Determinants of Early Settlement of Investor-State Disputes," Review of Law & Economics, De Gruyter, vol. 17(1), pages 133-166, March.
    2. Andrew F. Daughety & Jennifer F. Reinganum, 2005. "Secrecy and Safety," American Economic Review, American Economic Association, vol. 95(4), pages 1074-1091, September.
    3. Lode Li & Hongtao Zhang, 2008. "Confidentiality and Information Sharing in Supply Chain Coordination," Management Science, INFORMS, vol. 54(8), pages 1467-1481, August.
    4. Bruno Deffains & Claude Fluet, 2013. "Legal Liability when Individuals Have Moral Concerns," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 29(4), pages 930-955, August.
    5. Jihong Lee & Qingmin Liu, 2008. "The Dynamics of Bargaining Postures: The Role of a Third Party," PIER Working Paper Archive 09-001, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    6. Calzolari, Giacomo & Pavan, Alessandro, 2006. "On the optimality of privacy in sequential contracting," Journal of Economic Theory, Elsevier, vol. 130(1), pages 168-204, September.
    7. Thomas D. Jeitschko & Byung-Cheol Kim, 2013. "Signaling, Learning, and Screening Prior to Trial: Informational Implications of Preliminary Injunctions," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 29(5), pages 1085-1113, October.
    8. Andrew F. Daughety & Jennifer F. Reinganum, 2011. "A dynamic model of lawsuit joinder and settlement," RAND Journal of Economics, RAND Corporation, vol. 42(3), pages 471-494, September.
    9. Matthias Kräkel, 2010. "Double-Sided Moral Hazard, Efficiency Wages, and Litigation," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 26(2), pages 337-364.
    10. Andrew F. Daughety & Jennifer F. Reinganum, 2004. "Exploiting Future Settlements: A Signalling Model of Most-Favored-Nation Clauses in Settlement Bargaining," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 467-485, Autumn.
    11. Spier, Kathryn E., 2001. "The Use of “Most-Favored-Nation” Clauses in Settlement of Litigation," Berkeley Olin Program in Law & Economics, Working Paper Series qt7hm4d39g, Berkeley Olin Program in Law & Economics.
    12. Christopher C. Klein, 2007. "Anticompetitive Litigation and Antitrust Liability," Working Papers 200713, Middle Tennessee State University, Department of Economics and Finance.
    13. Daughety, Andrew F. & Reinganum, Jennifer F., 2007. "Competition and confidentiality: Signaling quality in a duopoly when there is universal private information," Games and Economic Behavior, Elsevier, vol. 58(1), pages 94-120, January.
    14. Espínola-Arredondo, Ana & Gal-Or, Esther & Muñoz-García, Félix, 2011. "When should a firm expand its business?," International Journal of Industrial Organization, Elsevier, vol. 29(6), pages 729-745.
    15. Florian Baumann & Tim Friehe, 2012. "Emotions in litigation contests," Economics of Governance, Springer, vol. 13(3), pages 195-215, September.
    16. Anne Duchêne & Konstantinos Serfes, 2012. "Patent Settlements as a Barrier to Entry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(2), pages 399-429, June.
    17. Gerard Llobet & Jorge Padilla, 2023. "A theory of socially inefficient patent holdout," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 32(2), pages 424-449, April.
    18. Duy Vu, 2018. "To Settle or to Fight to the End? Case-level Determinants of Early Settlement of Investor-State Disputes," GREDEG Working Papers 2018-36, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France, revised Feb 2020.
    19. 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.
    20. John Stranlund & Jeffrey Wagner, 2023. "Tort reform and contingent incomplete liability," Economics Bulletin, AccessEcon, vol. 43(4), pages 1718-1729.

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