A Dynamic Model of Lawsuit Joinder and Settlement
AbstractIn this paper we examine a dynamic model of the process by which multiple related lawsuits may be filed and combined; we also examine actions a defendant may employ that may disrupt the formation of a joint suit. Our initial model involves two potential plaintiffs, with private information about the harm they have suffered, in a multi-period setting with positive costs of filing a suit. If two plaintiffs file, they join their suits to obtain a lower per-plaintiff trial cost and a higher likelihood of prevailing against the defendant. We find that some plaintiff types never file, some wait to see if another victim files and only then file, some file early and then drop their suits if not joined by another victim and, finally, some file and pursue their suits whether or not they are joined; thus, the equilibrium resembles a "bandwagon." We then consider the effect of allowing preemptive settlement offers by the defendant aimed at discouraging follow-on suits. Preemptive settlement results in a "gold rush" of cases into the first period. In general, plaintiffs (ex ante) strictly prefer that such preemptive settlements not be allowed, and computational results suggest this may be broadly true for defendants as well; however, the inability of defendants to commit to such a policy results in an equilibrium with preemptive settlement. Finally, we consider partial unawareness of victims as to the source of harm; this provides a role for plaintiffs' attorneys, who may seek additional victims to join a combined lawsuit. Confidential preemptive settlements in the case of partial unawareness restrict the plaintiff's attorney from seeking additional victims and therefore leads to higher preemptive settlement amounts. Moreover, the defendant strictly prefers to employ preemptive settlement if the fraction of unaware victims is sufficiently high.
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Bibliographic InfoPaper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0911.
Date of creation: Sep 2009
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Web page: http://www.vanderbilt.edu/econ/wparchive/index.html
Lawsuits; settlement; aggregation; dynamics;
Other versions of this item:
- K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-09-26 (All new papers)
- NEP-LAW-2009-09-26 (Law & Economics)
- NEP-MIC-2009-09-26 (Microeconomics)
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- Bruno Deffains & Eric Langlais, 2011.
"Informational Externalities and Settlements in Mass Tort Litigations,"
EconomiX Working Papers
2011-14, University of Paris West - Nanterre la Défense, EconomiX.
- Bruno Deffains & Eric Langlais, 2011. "Informational externalities and settlements in mass tort litigations," European Journal of Law and Economics, Springer, vol. 32(2), pages 241-262, October.
- Deffains, Bruno & Langlais, Eric, 2010. "Informational Externalities and Settlements in Mass Tort Litigations," MPRA Paper 23016, University Library of Munich, Germany.
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