Plaintiffs exploiting Plaintiffs
AbstractWe consider a model of a single defendant and N plaintiffs where the total cost of litigation is fixed on the part of the plaintiffs and shared among the members of a suing coalition. By settling and dropping out of the coalition, a plaintiff therefore creates a negative externality on the other plaintiffs. It was shown in Che and Spier (2007) that failure to internalize this externality can often be exploited by the defendant. However, if plaintiffs make sequential take-it-or-leave-it settlement offers, we can show that they will actually be exploited by one of their fellow plaintiffs rather than by the defendant. Moreover, if litigation is a public good as is the case in shareholder derivative suits, parties may fail to reach a settlement even having complete information. This may explain why we observe derivative suits in the US but not in Europe.
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Bibliographic InfoPaper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 224.
Date of creation: Jan 2008
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litigation; settlement; bargaining; contracting with externalities; derivative suits; public goods;
Other versions of this item:
- Alexander Stremitzer, 2008. "Plaintiffs exploiting Plaintiffs," Bonn Econ Discussion Papers, University of Bonn, Germany bgse2_2008, University of Bonn, Germany.
- K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
- H4 - Public Economics - - Publicly Provided Goods
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-02-23 (All new papers)
- NEP-GTH-2008-02-23 (Game Theory)
- NEP-LAW-2008-02-23 (Law & Economics)
- NEP-PBE-2008-02-23 (Public Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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"Exploiting Plaintiffs through Settlement: Divide and Conquer,"
Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen,
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- Yeon-Koo Che & Kathryn E. Spier, 2007. "Exploiting Plaintiffs Through Settlement: Divide and Conquer," Discussion Papers, Columbia University, Department of Economics 0607-18, Columbia University, Department of Economics.
- Che, Yeon-Koo & Spier, Kathryn, 2007. "Exploiting Plaintiffs Through Settlement: Divide and Conquer," MPRA Paper 6104, University Library of Munich, Germany.
- Ehud Guttel & Shmuel Leshem, 2011. "Buying the Right to Harm: The Economics of Buyouts," CAE Working Papers, Aix-Marseille UniversitÃ©, CERGAM 93, Aix-Marseille Université, CERGAM.
- Grechenig, Kristoffel & Sekyra, Michael, 2011. "No derivative shareholder suits in Europe: A model of percentage limits and collusion," International Review of Law and Economics, Elsevier, Elsevier, vol. 31(1), pages 16-20, March.
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