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Information and Externalities in Sequential Litigation

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  • 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.

Suggested Citation

  • Xinyu Hua & Kathryn E. Spier, 2004. "Information and Externalities in Sequential Litigation," NBER Working Papers 10943, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:10943
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    Cited by:

    1. Friehe, Tim & Pham, Cat Lam, 2020. "Settling with salience-biased defendants," Economics Letters, Elsevier, vol. 192(C).
    2. Baumann, Florian & Friehe, Tim, 2014. "On discovery, restricting lawyers, and the settlement rate," DICE Discussion Papers 155, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    3. Jihong Lee & Qingmin Liu, 2008. "The Dynamics of Bargaining Postures: The Role of a Third Party," PIER Working Paper Archive 09-001, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    4. Friehe, Tim & Gabuthy, Yannick & Lambert, Eve-Angéline, 2020. "Settlement implications of lawyer advertising," International Review of Law and Economics, Elsevier, vol. 61(C).
    5. Ayouni, Mehdi & Friehe, Tim & Gabuthy, Yannick, 2020. "Opting for the English rule: On the contractual re-allocation of legal fees," International Review of Law and Economics, Elsevier, vol. 63(C).
    6. Friehe, Tim, 2009. "Screening accident victims," International Review of Law and Economics, Elsevier, vol. 29(3), pages 272-280, September.
    7. Farmer, Amy & Pecorino, Paul, 2017. "Litigation with judgment proof defendants," International Review of Law and Economics, Elsevier, vol. 49(C), pages 1-9.
    8. Christoph Engel & Urs Schweizer, 2005. "Editorial Preface," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 161(2), pages 191-192, June.
    9. Anne Duchêne & Konstantinos Serfes, 2012. "Patent Settlements as a Barrier to Entry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(2), pages 399-429, June.
    10. Álvaro Bustos, 2020. "How Does Court Stability Affect Legal Stability?," Documentos de Trabajo 535, Instituto de Economia. Pontificia Universidad Católica de Chile..
    11. Yeon-Koo Che & Kathryn E. Spier, 2008. "Exploiting Plaintiffs through Settlement: Divide and Conquer," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(1), pages 4-23, March.

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    More about this item

    JEL classification:

    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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