Plaintiffs exploiting Plaintiffs
AbstractWe consider a model of a single defendant and N plaintiffs where the total cost of litigation is fixed on the part of the plaintiffs and shared among the members of a suing coalition. By settling and dropping out of the coalition, a plaintiff therefore creates a negative externality on the other plaintiffs. It was shown in Che and Spier (2007) that failure to internalize this externality can often be exploited by the defendant. However, if plaintiffs make sequential take-it-or-leave-it settlement offers, we can show that they will actually be exploited by one of their fellow plaintiffs rather than by the defendant. Moreover, if litigation is a public good as is the case in shareholder derivative suits, parties may fail to reach a settlement even having complete information. This may explain why we observe derivative suits in the US but not in Europe.
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Bibliographic InfoPaper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse2_2008.
Date of creation: 12 Jan 2008
Date of revision:
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litigation; settlement; bargaining; contracting with externalities; derivative suits; public goods;
Other versions of this item:
- Stremitzer, Alexander, 2008. "Plaintiffs exploiting Plaintiffs," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 224, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
- H4 - Public Economics - - Publicly Provided Goods
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- Che, Yeon-Koo & Spier, Kathryn, 2007.
"Exploiting Plaintiffs Through Settlement: Divide and Conquer,"
6104, University Library of Munich, Germany.
- 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.
- Yeon-Koo Che & Kathryn E. Spier, 2007. "Exploiting Plaintiffs Through Settlement: Divide and Conquer," Discussion Papers 0607-18, Columbia University, Department of Economics.
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"Corporate Ownership Around the World,"
NBER Working Papers
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- Oren Bar-Gill, 2006. "The Evolution and Persistence of Optimism in Litigation," Journal of Law, Economics and Organization, Oxford University Press, vol. 22(2), pages 490-507, October.
- Grechenig, Kristoffel & Sekyra, Michael, 2011. "No derivative shareholder suits in Europe: A model of percentage limits and collusion," International Review of Law and Economics, Elsevier, vol. 31(1), pages 16-20, March.
- Ehud Guttel & Shmuel Leshem, 2011. "Buying the Right to Harm: The Economics of Buyouts," CAE Working Papers 93, Aix-Marseille Université, CERGAM.
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