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The effect of lawyers' career concerns on litigation

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Abstract

This article studies a model with two lawyers opposing each other in a case where the outcome of the trial depends on the lawyers' talents and choices of effort. The trial outcome provides an implicit incentive because it is informative about the lawyers' talents. Regardless of the functional form used to model the binary trial outcome, the implicit incentive can be characterized by three components, namely, the ex-ante uncertainty on the lawyers' talents, the sensitivity of the trial outcome to the lawyers' talents, and the variance of the noise in the trial outcome, which is endogenous. These components interplay with the lawyers' effort levels, affecting the informativeness of the trial outcome on the lawyers' talents. As a consequence, career concerns introduce distortions in litigation decisions. The strategic interactions that arise affect the equilibrium probability of prevailing in court, litigation costs, and consequently, settlement decisions as well as other stages of the litigation process. Furthermore, the merits of the case serve as a multiplier of the implicit incentive when the sensitivity of the trial outcome to the lawyers' talents is increasing in the difficulty of the case.

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  • Rosa Ferrer Zarzuela, 2015. "The effect of lawyers' career concerns on litigation," Economics Working Papers 1496, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2016.
    • Handle: RePEc:upf:upfgen:1496
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    Cited by:

    1. Bonatti, Alessandro & Hörner, Johannes, 2017. "Career concerns with exponential learning," Theoretical Economics, Econometric Society, vol. 12(1), January.
    2. Evangelia Chalioti, 2015. "Team Production, Endogenous Learning about Abilities and Career Concerns," Cowles Foundation Discussion Papers 2020, Cowles Foundation for Research in Economics, Yale University.
    3. Alessandro Bonatti & Johannes Horner, 2011. "Career Concerns with Coarse Information," Cowles Foundation Discussion Papers 1831, Cowles Foundation for Research in Economics, Yale University, revised Jan 2012.
    4. SIDDHARTHA BANDYOPADHYAY & BRYAN C. McCANNON, 2015. "Prosecutorial Retention: Signaling by Trial," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(2), pages 219-256, April.
    5. Alessandro Bonatti & Johannes Horner, 2011. "Career Concerns and Market Structure," Cowles Foundation Discussion Papers 1831R, Cowles Foundation for Research in Economics, Yale University, revised Oct 2013.

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    More about this item

    Keywords

    Reputational gain; effort incentives; strategic interactions; settlement; endogenous noise.;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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