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Costly Evidence Production and the Limits of Verifiability

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  • Jesse Bull

    ()
    (Department of Economics, Florida International University)

Abstract

This paper explores the limits of "verifiability" induced by the process of costly evidence production in contractual relationships of complete information. I study how the cost of providing evidence (disclosing documents) influences the set of enforceable contracts. I show that evidence cost can be both beneficial and detrimental with regard to enlarging the set of settlement outcomes that can be implemented. Further, I study how what can be considered verifiable is influenced by parties’ incentives to produce evidence and by the particular evidence cost structure. My analysis includes the opportunity for contracting parties to renegotiate (or settle) prior to the enforcement phase. I also study how the availability of redundant documents expands the set of enforceable contracts, and discuss the relevance of my findings to the design of legal institutions.

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File URL: http://casgroup.fiu.edu/pages/docs/2244/1275230187_06-11.pdf
File Function: Revised version, 2006
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Bibliographic Info

Paper provided by Florida International University, Department of Economics in its series Working Papers with number 0611.

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Length: 30 pages
Date of creation: Sep 2006
Date of revision:
Handle: RePEc:fiu:wpaper:0611

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Phone: (305) 348-2316
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Web page: http://casgroup.fiu.edu/Economics/
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Keywords: contracts; verifiability;

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References

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  1. Okuno-Fujiwara, Masahiro & Postlewaite, Andrew & Suzumura, Kotaro, 1990. "Strategic Information Revelation," Review of Economic Studies, Wiley Blackwell, vol. 57(1), pages 25-47, January.
  2. 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.
  3. Chris Sanchirico & George Triantis, . "Evidentiary Arbitrage: The Fabrication of Evidence and The Verifiability of Contract Performance," University of Virginia John M. Olin Program for Law & Economics Working Paper Series uvalwps-1011, University of Virginia School of Law.
  4. Joel Watson & Jesse Bull, 2004. "Hard Evidence and Mechanism Design," Econometric Society 2004 North American Winter Meetings 433, Econometric Society.
  5. Alan Schwartz & Joel Watson, . "The Law and Economics of Costly Contracting," Yale Law School John M. Olin Center for Studies in Law, Economics, and Public Policy Working Paper Series yale_lepp-1004, Yale Law School John M. Olin Center for Studies in Law, Economics, and Public Policy.
  6. Song Shin, H, 1996. "Adversarial and Inquisitorial Procedures in Arbitration," Economics Papers 124, Economics Group, Nuffield College, University of Oxford.
  7. Bull Jesse, 2008. "Mechanism Design with Moderate Evidence Cost," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 8(1), pages 1-20, May.
  8. Cooter, Robert D & Rubinfeld, Daniel L, 1994. "An Economic Model of Legal Discovery," The Journal of Legal Studies, University of Chicago Press, vol. 23(1), pages 435-63, January.
  9. Eric Maskin & John Moore, 1998. "Implementation and renegotiation," LSE Research Online Documents on Economics 19350, London School of Economics and Political Science, LSE Library.
  10. Bull, Jesse & Watson, Joel, 2004. "Evidence disclosure and verifiability," Journal of Economic Theory, Elsevier, vol. 118(1), pages 1-31, September.
  11. Evans, R., 2006. "Mechanism Design with Renegotiation and Costly Messages," Cambridge Working Papers in Economics 0626, Faculty of Economics, University of Cambridge.
  12. Daniel L. Rubinfeld & David E.M. Sappington, 1987. "Efficient Awards and Standards of Proof in Judicial Proceedings," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 308-315, Summer.
  13. repec:cdl:ucsdec:540003 is not listed on IDEAS
  14. Cooter, Robert D & Rubinfeld, Daniel L, 1989. "Economic Analysis of Legal Disputes and Their Resolution," Journal of Economic Literature, American Economic Association, vol. 27(3), pages 1067-97, September.
  15. Daughety, Andrew F & Reinganum, Jennifer F, 2000. "On the Economics of Trials: Adversarial Process, Evidence, and Equilibrium Bias," Journal of Law, Economics and Organization, Oxford University Press, vol. 16(2), pages 365-94, October.
  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. Shepherd, George B., 1999. "An empirical study of the economics of pretrial discovery," International Review of Law and Economics, Elsevier, vol. 19(2), pages 245-263, June.
  18. Deneckere,R. & Severinov,S., 2001. "Mechanism design and communication costs," Working papers 23, Wisconsin Madison - Social Systems.
  19. 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.
  20. Bernardo, Antonio E & Talley, Eric & Welch, Ivo, 2000. "A Theory of Legal Presumptions," Journal of Law, Economics and Organization, Oxford University Press, vol. 16(1), pages 1-49, April.
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Citations

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Cited by:
  1. Chris Sanchirico & George Triantis, . "Evidence Arbitrage: The Fabrication of Evidence and the Verifiability of Contract Performance," Scholarship at Penn Law upenn_wps-1005, University of Pennsylvania Law School.
  2. Bull, Jesse & Watson, Joel, 2002. "Evidence Disclosure and Verfiability," University of California at San Diego, Economics Working Paper Series qt19p7z2gm, Department of Economics, UC San Diego.
  3. Joel Watson, 2007. "Contract, Mechanism Design, and Technological Detail," Econometrica, Econometric Society, vol. 75(1), pages 55-81, 01.
  4. Schwartz, Alan & Watson, Joel, 2001. "The Law and Economics of Costly Contracting," University of California at San Diego, Economics Working Paper Series qt2wh8m7bv, Department of Economics, UC San Diego.
  5. Joel Watson & Jesse Bull, 2004. "Hard Evidence and Mechanism Design," Econometric Society 2004 North American Winter Meetings 433, Econometric Society.
  6. Alan Schwartz, 2004. "The Law and Economics of Costly Contracting," Journal of Law, Economics and Organization, Oxford University Press, vol. 20(1), pages 2-31, April.
  7. Manuel Willington, 2013. "Hold Up Under Costly Litigation and Imperfect Courts of Law," Journal of Law, Economics and Organization, Oxford University Press, vol. 29(5), pages 1023-1055, October.

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