Advanced Search
MyIDEAS: Login

Trial and settlement negotiations between asymmetrically skilled parties

Contents:

Author Info

  • 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.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://economix.fr/pdf/dt/2008/WP_EcoX_2008-32.pdf
Download Restriction: no

Bibliographic Info

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

as in new window
Length: 30 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:drm:wpaper:2008-32

Contact details of provider:
Postal: 200 Avenue de la République, Bât. G - 92001 Nanterre Cedex
Email:
Web page: http://economix.fr
More information through EDIRC

Related research

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

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Bertrand Chopard & Thomas Cortade & Eric Langlais, 2008. "Trial and settlement negotiations between asymmetrically skilled parties," EconomiX Working Papers 2008-32, University of Paris West - Nanterre la Défense, EconomiX.
  2. Shavell, Steven, 1996. "Any Frequency of Plaintiff Victory at Trial Is Possible," The Journal of Legal Studies, University of Chicago Press, vol. 25(2), pages 493-501, June.
  3. Lynk, William J, 1990. "The Courts and the Market: An Economic Analysis of Contingent Fees in Class-Action Litigation," The Journal of Legal Studies, University of Chicago Press, vol. 19(1), pages 247-60, January.
  4. Waldfogel, Joel, 1995. "The Selection Hypothesis and the Relationship between Trial and Plaintiff Victory," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 229-60, April.
  5. Waldfogel, Joel, 1998. "Reconciling Asymmetric Information and Divergent Expectations Theories of Litigation," Journal of Law and Economics, University of Chicago Press, vol. 41(2), pages 451-76, October.
  6. Winand Emons & Claude Fluet, 2005. "The Optimal Amount of Falsfied Testimony," Diskussionsschriften dp0506, Universitaet Bern, Departement Volkswirtschaft.
  7. Miceli, Thomas J & Segerson, Kathleen, 1991. "Contingent Fees for Lawyers: The Impact on Litigation and Accident Prevention," The Journal of Legal Studies, University of Chicago Press, vol. 20(2), pages 381-99, June.
  8. Landeo, Claudia M. & Nikitin, Maxim & Babcock, Linda, 2007. "Split-awards and disputes: An experimental study of a strategic model of litigation," Journal of Economic Behavior & Organization, Elsevier, vol. 63(3), pages 553-572, July.
  9. Hylton, Keith N., 2002. "An asymmetric-information model of litigation," International Review of Law and Economics, Elsevier, vol. 22(2), pages 153-175, August.
  10. repec:att:wimass:9120 is not listed on IDEAS
  11. Michael R. Baye & Dan Kovenock & Casper De Vries, 2000. "Comparative Analysis of Litigation Systems: An Auction-Theoretic Approach," CESifo Working Paper Series 373, CESifo Group Munich.
  12. Andrew F. Daughety & Jennifer F. Reinganum, 1994. "Settlement Negotiations with Two-Sided Asymmetric Information: Model Duality, Information Distribution and Efficiency," Game Theory and Information 9403009, EconWPA.
  13. Jue-Shyan Wang, 2007. "Fee-Shifting Rules in Litigation with Contingency Fees," Journal of Law, Economics and Organization, Oxford University Press, vol. 23(3), pages 519-546, October.
  14. Schweizer, Urs, 1989. "Litigation and Settlement under Two-Sided Incomplete Information," Review of Economic Studies, Wiley Blackwell, vol. 56(2), pages 163-77, April.
  15. Steven Shavell, 1989. "Sharing of Information Prior to Settlement or Litigation," RAND Journal of Economics, The RAND Corporation, vol. 20(2), pages 183-195, Summer.
  16. Froeb, Luke M. & Kobayashi, Bruce H., 2001. "Evidence production in adversarial vs. inquisitorial regimes," Economics Letters, Elsevier, vol. 70(2), pages 267-272, February.
  17. George L. Priest & Benjamin Klein, 1984. "The Selection of Disputes for Litigation," The Journal of Legal Studies, University of Chicago Press, vol. 13(1), pages 1-56, January.
  18. Plott, Charles R, 1987. "Legal Fees: A Comparison of the American and English Rules," Journal of Law, Economics and Organization, Oxford University Press, vol. 3(2), pages 185-92, Fall.
  19. Nicolas Marceau & Steeve Mongrain, 2001. "Damage Averaging and the Formation of Class Action Suits," Cahiers de recherche CREFE / CREFE Working Papers 139, CREFE, Université du Québec à Montréal.
  20. Emons, Winand, 2004. "Conditional versus Contingent Fees," CEPR Discussion Papers 4532, C.E.P.R. Discussion Papers.
  21. Amy Farmer & Paul Pecorino, 2005. "Civil Litigation with Mandatory Discovery and Voluntary Transmission of Private Information," The Journal of Legal Studies, University of Chicago Press, vol. 34(1), pages 137-159, 01.
  22. Shin, Hyun Song, 1997. "Adversarial and Inquisitorial Procedures in Arbitration," CEPR Discussion Papers 1722, C.E.P.R. Discussion Papers.
  23. Jennifer F. Reinganum & Louise L. Wilde, 1986. "Settlement, Litigation, and the Allocation of Litigation Costs," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 557-566, Winter.
  24. Alon Klement, 2004. "Incentive Structures for Class Action Lawyers," Journal of Law, Economics and Organization, Oxford University Press, vol. 20(1), pages 102-124, April.
  25. Farmer, Amy & Pecorino, Paul, 2004. "Pretrial settlement with fairness," Journal of Economic Behavior & Organization, Elsevier, vol. 54(3), pages 287-296, July.
  26. Maxim Nikitin & Claudia M. Landeo, 2004. "Split-Award Tort Reform, Firm's Level of Care and Litigation Outcomes," Econometric Society 2004 Latin American Meetings 4, Econometric Society.
  27. 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.
  28. Spier, Kathryn E, 1992. "The Dynamics of Pretrial Negotiation," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 93-108, January.
  29. Farmer, Amy & Pecorino, Paul, 1994. "Pretrial negotiations with asymmetric information on risk preferences," International Review of Law and Economics, Elsevier, vol. 14(3), pages 273-281, September.
  30. Louis Kaplow, 1993. "Shifting Plaintiffs' Fees versus Increasing Damage Awards," NBER Working Papers 4263, National Bureau of Economic Research, Inc.
  31. Theodore Eisenberg & Henry S. Farber, 1996. "The Litigious Plaintiff Hypothesis: Case Selection and Resolution," NBER Working Papers 5649, National Bureau of Economic Research, Inc.
  32. Farmer, Amy & Pecorino, Paul, 1999. " Legal Expenditure as a Rent-Seeking Game," Public Choice, Springer, vol. 100(3-4), pages 271-88, September.
  33. Daniel Friedman & Donald Wittman, 2003. "Litigation with Symmetric Bargaining and Two-Sided Incomplete Information," CESifo Working Paper Series 1001, CESifo Group Munich.
  34. A. Mitchell Polinsky & Yeon-Koo Che, 1991. "Decoupling Liability: Optimal Incentives for Care and Litigation," NBER Working Papers 3634, National Bureau of Economic Research, Inc.
  35. Gong, Jiong & McAfee, R Preston, 2000. "Pretrial Negotiation, Litigation, and Procedural Rules," Economic Inquiry, Western Economic Association International, vol. 38(2), pages 218-38, April.
  36. Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn.
  37. Hughes, James W & Snyder, Edward A, 1995. "Litigation and Settlement under the English and American Rules: Theory and Evidence," Journal of Law and Economics, University of Chicago Press, vol. 38(1), pages 225-50, April.
  38. Katz, Avery, 1987. "Measuring the Demand for Litigation: Is the English Rule Really Cheaper?," Journal of Law, Economics and Organization, Oxford University Press, vol. 3(2), pages 143-76, Fall.
  39. Wang, Gyu Ho & Kim, Jeong-Yoo & Yi, Jong-Goo, 1994. "Litigation and Pretrial Negotiation under Incomplete Information," Journal of Law, Economics and Organization, Oxford University Press, vol. 10(1), pages 187-200, April.
  40. Winand Emons, 2006. "Playing It Safe with Low Conditional Fees versus Being Insured by High Contingent Fees," American Law and Economics Review, Oxford University Press, vol. 8(1), pages 20-32.
  41. Winand Emons & Nuno Garoupa, 2004. "The Economics of US-style Contingent Fees and UK-style Conditional Fees," Diskussionsschriften dp0407, Universitaet Bern, Departement Volkswirtschaft.
  42. Farmer, Amy & Pecorino, Paul, 2002. "Pretrial bargaining with self-serving bias and asymmetric information," Journal of Economic Behavior & Organization, Elsevier, vol. 48(2), pages 163-176, June.
  43. Osborne, Evan, 1999. "Who should be worried about asymmetric information in litigation?," International Review of Law and Economics, Elsevier, vol. 19(3), pages 399-409, September.
  44. Macho-Stadler, Ines & Perez-Castrillo, J. David, 2001. "An Introduction to the Economics of Information: Incentives and Contracts," OUP Catalogue, Oxford University Press, edition 2, number 9780199243273.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. 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.
  2. 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.
  3. 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.
  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.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:drm:wpaper:2008-32. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Valérie Mignon).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.