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Exploiting Plaintiffs Through Settlement: Divide and Conquer

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  • Yeon-Koo Che

    ()
    (Department of Economics, Columbia University)

  • Kathryn E. Spier

    ()
    (Harvard Law School)

Abstract

This paper considers settlement negotiations between a single defendant and N plaintiffs when there are fixed costs of litigation. When making simultaneous take-it-or-leave-it offers to the plaintiffs, the defendant adopts a divide and conquer strategy. Plaintiffs settle their claims for less than they are jointly worth. The problem is worse when N is larger, the offers are sequential, and the plaintiffs make offers instead. Although divide and conquer strategies dilute the defendant's incentives, they increase the settlement rate and reduce litigation spending. Plaintiffs can raise their joint payoff through transfer payments, voting rules, and covenants not to accept discriminatory offers.

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Bibliographic Info

Paper provided by Columbia University, Department of Economics in its series Discussion Papers with number 0607-18.

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Length: 25 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:clu:wpaper:0607-18

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Citations

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Cited by:
  1. Landeo, Claudia M. & Spier, Kathryn E., 2007. "Naked Exclusion: An Experimental Study of Contracts with Externalities," MPRA Paper 9143, University Library of Munich, Germany.
  2. Alexander Stremitzer, 2008. "Plaintiffs exploiting Plaintiffs," Bonn Econ Discussion Papers bgse2_2008, University of Bonn, Germany.
  3. Guttel, Ehud & Leshem, Shmuel, 2013. "Bargaining around cost–benefit standards," Journal of Public Economics, Elsevier, vol. 103(C), pages 55-67.
  4. Rohan Pitchford & Mark L. J. Wright, 2008. "Holdouts In Sovereign Debt Restructuring: A Theory Of Negotiation In A Weak Contractual Environment," CAMA Working Papers 2008-37, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

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