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Exploiting Plaintiffs Through Settlement: Divide and Conquer

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Author Info
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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File URL: http://www.econ.columbia.edu/RePEc/pdf/DP0607-18.pdf
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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
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Handle: RePEc:clu:wpaper:0607-18

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. 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.
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  5. Sykes, Alan O, 1994. ""Bad Faith" Refusal to Settle by Liability Insurers: Some Implications of the Judgment-Proof Problem," Journal of Legal Studies, University of Chicago Press, vol. 23(1), pages 77-110, January.
  6. Yeon-Koo Che, 2002. "The Economics of Collective Negotiation in Pretrial Bargaining," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 549-576, May. [Downloadable!] (restricted)
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  20. Che, Yeon-Koo & Yi, Jong Goo, 1993. "The Role of Precedents in Repeated Litigation," Journal of Law, Economics and Organization, Oxford University Press, vol. 9(2), pages 399-424, October.
  21. Klerman, Daniel, 1996. "Settling Multidefendant Lawsuits: The Advantage of Conditional Setoff Rules," Journal of Legal Studies, University of Chicago Press, vol. 25(2), pages 445-62, June.
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    Other versions:
  27. Kornhauser, Lewis A & Revesz, Richard L, 1994. "Multidefendant Settlements: The Impact of Joint and Several Liability," Journal of Legal Studies, University of Chicago Press, vol. 23(1), pages 41-76, January.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Alexander Stremitzer, 2008. "Plaintiffs exploiting Plaintiffs," Bonn Econ Discussion Papers bgse2_2008, University of Bonn, Germany. [Downloadable!]
    Other versions:
    • Alexander Stremitzer, 2008. "Plaintiffs exploiting Plaintiffs," Discussion Papers 224, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
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