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A Note on the Divergence between the Private and the Social Motive to Settle under a Negligence Rule

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  • Spier, Kathryn E
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    Abstract

    The private motives to settle civil lawsuits are seldom aligned with the interests of society. This article presents a simple model of a negligence rule where there is too much settlement During pretrial bargaining, the injurer has private information about his care level. In equilibrium the injurer randomizes between taking due care and being negligent, and the uninformed victim randomizes between making a high settlement offer (playing tough) and making a low settlement offer (playing soft). It is shown that social welfare would be improved if the victim were committed to take a tougher stance in negotiations and, consequently, more cases went to trial. Three legal policies to help align the private and social motives to settle are discussed: litigation subsidies, punitive damages, and the English Rule for allocating legal costs. Copyright 1997 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): 26 (1997)
    Issue (Month): 2 (June)
    Pages: 613-21

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    Handle: RePEc:ucp:jlstud:v:26:y:1997:i:2:p:613-21

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

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    Cited by:
    1. Shavell, Steven, 1999. "The level of litigation: private versus social optimality of suit and of settlement," International Review of Law and Economics, Elsevier, vol. 19(1), pages 99-115, March.
    2. Claudia M. Landeo & Maxim Nikitin, 2006. "Split-Award Tort Reform, Firm's Level of Care, and Litigation Outcomes," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 162(4), pages 571-600, December.
    3. Bourjade, Sylvain & Rey, Patrick & Seabright, Paul, 2009. "Private Antitrust Enforcement in the Presence of Pre-Trial Bargaining," TSE Working Papers 09-041, Toulouse School of Economics (TSE).
    4. A. Mitchell Polinsky & Steven Shavell, 1999. "The Economic Theory of Public Enforcement of Law," NBER Working Papers 6993, National Bureau of Economic Research, Inc.
    5. Steven Shavell, 2005. "Liability for Accidents," NBER Working Papers 11781, National Bureau of Economic Research, Inc.
    6. Guiseppe Dari-Mattiacci & Bruno Deffains, 2006. "Uncertainty of Law and the Legal Process," Tinbergen Institute Discussion Papers 06-071/1, Tinbergen Institute.
    7. A. Mitchell Polinsky & Steven Shavell, 2006. "Public Enforcement of Law," Discussion Papers 05-016, Stanford Institute for Economic Policy Research.
    8. Chu, C.Y. Cyrus & Huang, Chen-Ying, 2004. "On the definition and efficiency of punitive damages," International Review of Law and Economics, Elsevier, vol. 24(2), pages 241-254, June.

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