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Information and Externalities in Sequential Litigation

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Author Info
Xinyu Hua
Kathryn E. Spier
Abstract

The information created and disseminated through the litigation process can have social value. Suppose a long-lived plaintiff is suing a defendant for damages sustained in an accident. The plaintiff may suffer similar damages in future accidents involving different defendants. Potential injurers update their beliefs after observing the first case and subsequently fine-tune their precautions to avoid accidents. The joint incentive of the plaintiff and the first defendant to create public information through litigation is too small. The optimal liability rule trades off providing future injurers with incentives to take precautions and providing the plaintiff with incentives to create information.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10943.

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Date of creation: Dec 2004
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Handle: RePEc:nbr:nberwo:10943

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Find related papers by JEL classification:
K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability
K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information

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  1. Andrew F. Daughety & Jennifer F. Reinganum, 2002. "Informational Externalities in Settlement Bargaining: Confidentiality and Correlated Culpability," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 587-604, Winter.
  2. Andrew F. Daughety & Jennifer F. Reinganum, 1999. "Hush Money," RAND Journal of Economics, The RAND Corporation, vol. 30(4), pages 661-678, Winter. [Downloadable!] (restricted)
  3. Louis Kaplow & Steven Shavell, 1996. "Accuracy in the Assessment of Damages," NBER Working Papers 4287, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Shavell, Steven, 1997. "The Fundamental Divergence between the Private and the Social Motive to Use the Legal System," Journal of Legal Studies, University of Chicago Press, vol. 26(2), pages 575-612, June.
  5. Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn. [Downloadable!] (restricted)
  6. A. Mitchell Polinsky & Yeon-Koo Che, 1991. "Decoupling Liability: Optimal Incentives for Care and Litigation," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 562-570, Winter. [Downloadable!] (restricted)
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  7. Kornhauser, Lewis A & Revesz, Richard L, 1994. "Multidefendant Settlements under Joint and Several Liability: The Problem of Insolvency," Journal of Legal Studies, University of Chicago Press, vol. 23(1), pages 517-42, January.
  8. Che, Yeon-Koo, 1996. "Equilibrium formation of class action suits," Journal of Public Economics, Elsevier, vol. 62(3), pages 339-361, November. [Downloadable!] (restricted)
  9. Spier, Kathryn E. & Sykes, Alan O., 1998. "Capital structure, priority rules, and the settlement of civil claims," International Review of Law and Economics, Elsevier, vol. 18(2), pages 187-200, June. [Downloadable!] (restricted)
  10. 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.
  11. Spier, Kathryn E, 1994. "Settlement Bargaining and the Design of Damage Awards," Journal of Law, Economics and Organization, Oxford University Press, vol. 10(1), pages 84-95, April.
  12. Kornhauser, Lewis A & Revesz, Richard L, 1994. "Multidefendant Settlements: The Impact of Joint and Several Liability," Journal of Legal Studies, University of Chicago Press, vol. 23(1), pages 41-76, January.
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