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Trial and settlement negotiations between asymmetrically skilled parties

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  • Bertrand Chopard
  • Thomas Cortade
  • Eric Langlais

Abstract

Parties engaged in a litigation generally enter the discovery process with different informations regarding their case and/or an unequal endowment in terms of skill and ability to produce evidence and predict the outcome of a trial. Hence, they have to bear different legal costs to assess the (equilibrium) plaintiff’s win rate. The paper analyses pretrial negotiations and revisits the selection hypothesis in the case where these legal expenditures are private information. This assumption is consistent with empirical evidence (Osborne, 1999). Two alternative situations are investigated, depending on whether there exists a unilateral or a bilateral informational asymmetry. Our general result is that efficient pretrial negotiations select cases with the smallest legal expenditures as those going to trial, while cases with largest costs prefer to settle. Under the one-sided asymmetric information assumption, we find that the American rule yields more trials and higher aggregate legal expenditures than the French and British rules. The two-sided case leads to a higher rate of trials, but in contrast provides less clear-cut predictions regarding the influence of fee-shifting.

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Bibliographic Info

Paper provided by University of Paris West - Nanterre la Défense, EconomiX in its series EconomiX Working Papers with number 2008-32.

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Length: 30 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:drm:wpaper:2008-32

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Keywords: litigation; unilateral and bilateral asymmetric information; legal expenditures;

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References

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Citations

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Cited by:
  1. Ormosi, Peter L., 2012. "Tactical dilatory practice in litigation: Evidence from EC merger proceedings," International Review of Law and Economics, Elsevier, vol. 32(4), pages 370-377.
  2. Chopard, Bertrand & Cortade, Thomas & Langlais, Eric, 2010. "Trial and settlement negotiations between asymmetrically skilled parties," International Review of Law and Economics, Elsevier, vol. 30(1), pages 18-27, March.
  3. Schwab, Christian & Tang, Hin-Yue Benny, 2011. "Die Steuerungswirkungen unterschiedlicher Prozesskostenregelungen: Ein Überblick zum Stand von Theorie und Empirie
    [The economic effects of alternative fee shifting rules: A review of the theoreti
    ," MPRA Paper 32746, University Library of Munich, Germany.
  4. Bertrand Chopard & Thomas Cortade & Eric Langlais, 2013. "Damage rules and the patent hold-up problem : An analysis of Article L. 615-7," EconomiX Working Papers 2013-37, University of Paris West - Nanterre la Défense, EconomiX.

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