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Settling Multidefendant Lawsuits: The Advantage of Conditional Setoff Rules

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  • Klerman, Daniel
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    Abstract

    In cases involving multiple defendants, each defendant's incentive to settle is influenced by the setoff rule enforced in the relevant jurisdiction. This article suggests that the effect of a setoff rule depends on whether the setoff is conditional on a finding that the settling defendant or defendants were legally liable. Previous research, which assumed that the setoff was unconditional, found that the two principal rules applied by modern courts - the pro tanto and proportionate share rules - often discourage settlement when the plaintiff's probabilities of prevailing against each defendant are not perfectly correlated. This article shows that the disincentive to settlement can be reduced or eliminated by making the setoff conditional on the liability of the settling defendant or defendants. The conditional setoff rules are of practical as well as theoretical interest because several states currently apply them. Copyright 1996 by the University of Chicago.

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    Bibliographic Info

    Article provided by University of Chicago Press in its journal Journal of Legal Studies.

    Volume (Year): 25 (1996)
    Issue (Month): 2 (June)
    Pages: 445-62

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    Handle: RePEc:ucp:jlstud:v:25:y:1996:i:2:p:445-62

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    Web page: http://www.journals.uchicago.edu/JLS/

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    Cited by:
    1. Hviid, Morten & Medvedev, Andrei, 2010. "The role of contribution among defendants in private antitrust litigation," International Review of Law and Economics, Elsevier, vol. 30(4), pages 306-316, December.
    2. Yeon-Koo Che & Kathryn E. Spier, 2007. "Exploiting Plaintiffs Through Settlement: Divide and Conquer," Discussion Papers 0607-18, Columbia University, Department of Economics.
    3. Howard F. Chang & Hilary Sigman, 1999. "Incentives to Settle Under Joint and Several Liability," NBER Working Papers 7096, National Bureau of Economic Research, Inc.
    4. Howard F. Chang & Hilary Sigman, 2005. "The Effect of Joint and Several Liability under Superfund on Brownfields," Departmental Working Papers 200508, Rutgers University, Department of Economics.

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