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Trial and settlement negotiations between asymmetrically skilled parties

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  • Bertrand Chopard
  • Thomas Cortade

    ()
    (CEREFIGE)

  • Eric Langlais
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    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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    File URL: http://www.univ-nancy2.fr/CEREFIGE/realisations/cahiers/cahier2008/E%20LANGLAIS%202008%2010.pdf
    File Function: First version, 2008
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    Bibliographic Info

    Paper provided by CEREFIGE (Centre Europeen de Recherche en Economie Financiere et Gestion des Entreprises), Universite de Lorraine in its series Cahiers du CEREFIGE with number 0810.

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    Length: 31 pages
    Date of creation: 2008
    Date of revision: 2008
    Handle: RePEc:fie:wpaper:0810

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    Related research

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

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