Why Go to Court? Bargaining Failure under the Shadow of Trial with Complete Information
AbstractWhy do legal disputes ever go to trial? Prior research emphasizes the role of mistakes, irrationalities, or asymmetric information because rational litigants with complete or symmetric information should choose pre-trial settlements over the costs and risks of trial. Using a dynamic incomplete-contracting framework, we provide an overlooked rationale for going to court. Even though risky and costly, going to court can be both rational and socially efficient when a court decision enhances property rights and deters future costly litigation. Experimental evidence supports these predictions. Our findings provide new insights into the incidence of litigation and trial.
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Bibliographic InfoPaper provided by University of California-Irvine, Department of Economics in its series Working Papers with number 131406.
Length: 44 pages
Date of creation: May 2014
Date of revision:
Litigation; Court; Conflict; Contests;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- K11 - Law and Economics - - Basic Areas of Law - - - Property Law
- K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
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