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Exploiting Plaintiffs Through Settlement: Divide and Conquer

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  • Che, Yeon-Koo
  • Spier, Kathryn

Abstract

This paper considers settlement negotiations between a single defendant and $N$ plaintiffs when there are fixed costs of litigation. When making simultaneous take-it-or-leave-it offers to the plaintiffs, the defendant adopts a divide and conquer strategy. Plaintiffs settle their claims for less than they are jointly worth. The problem is worse when $N$ is larger, the offers are sequential, and the plaintiffs make offers instead. Although divide and conquer strategies dilute the defendant's incentives, they increase the settlement rate and reduce litigation spending. Plaintiffs can raise their joint payoff through transfer payments, voting rules, and covenants not to accept discriminatory offers.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6104.

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Date of creation: 2007
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Handle: RePEc:pra:mprapa:6104

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References

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  1. Andrew F. Daughety & Jennifer F. Reinganum, 2004. "Exploiting Future Settlements: A Signalling Model of Most-Favored-Nation Clauses in Settlement Bargaining," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 467-485, Autumn.
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  7. Alexander Stremitzer, 2008. "Exploiting Plaintiffs through Settlement: Divide and Conquer. Comment," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 164(1), pages 27-30, March.
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  21. Xinyu Hua & Kathryn E. Spier, 2005. "Information and Externalities in Sequential Litigation," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 161(2), pages 215-, June.
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Citations

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Cited by:
  1. Rohan Pitchford & Mark L. J. Wright, 2008. "Holdouts In Sovereign Debt Restructuring: A Theory Of Negotiation In A Weak Contractual Environment," CAMA Working Papers 2008-37, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  2. Andrew F. Daughety & Jennifer F. Reinganum, 2014. "Settlement and Trial: Selected Analyses of the Bargaining Environment," Vanderbilt University Department of Economics Working Papers 14-00006, Vanderbilt University Department of Economics.
  3. Claudia M. Landeo & Kathryn E. Spier, 2009. "Naked Exclusion: An Experimental Study of Contracts with Externalities," American Economic Review, American Economic Association, American Economic Association, vol. 99(5), pages 1850-77, December.
  4. Alexander Stremitzer, 2008. "Plaintiffs exploiting Plaintiffs," Bonn Econ Discussion Papers, University of Bonn, Germany bgse2_2008, University of Bonn, Germany.
  5. Guttel, Ehud & Leshem, Shmuel, 2013. "Bargaining around cost–benefit standards," Journal of Public Economics, Elsevier, Elsevier, vol. 103(C), pages 55-67.

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