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Comparative Analysis of Litigation Systems: An Auction-Theoretic Approach

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Author Info
Michael R. Baye
Dan Kovenock
Casper G. de Vries

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Abstract

A simple auction-theoretic framework is used to examine symmetric litigation environments where the legal ownership of a disputed asset is unknown by the court. The court observes only the quality of the case presented by each party, and awards the asset to the party presenting the best case. Rational litigants influence the quality of their cases by hiring skillful attorneys. This framework permits us to compare the equilibrium legal expenditures that arise under a continuum of legal systems. The British rule, American rule, and some recently proposed legal reforms are special cases of our model.

ZUSAMMENFASSUNG - (Vergleichende Analyse von Prozeßsystemen: Ein auktionstheoretischer Ansatz)
Anhand eines einfachen auktionstheoretischen Ansatzes werden symmetrische Prozeßumwelten untersucht, bei denen der Eigentümer des Streitgegenstandes dem Gericht nicht bekannt ist. Das Gericht kann nur die Qualität der durch die einzelnen Parteien präsentierten Argumente beobachten und dann jener Partei den Vermögenszuschlag geben, die die besten Argumente präsentiert hat. Rationale Prozeßparteien beeinflussen die Qualität ihrer Argumente durch den Einsatz geschickter Anwälte. Der gewählte Ansatz erlaubt es, die im Gleichgewicht entstehenden Prozeßkosten für ein Kontinuum von Rechtssystemen zu vergleichen. Die britische Rechtsregelung, die amerikanische Rechtsregelung und einige jüngst vorgeschlagene Rechtsformen sind Spezialfälle des vorgestellten Modells.

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Publisher Info
Paper provided by Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) in its series CIG Working Papers with number FS IV 00-13.

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Length: 45 pages
Date of creation: Nov 2000
Date of revision:
Publication status: Published in Economic Journal, Vol. 115(505), July 2005, pp. 583-601.
Handle: RePEc:wzb:wzebiv:fsiv00-13

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Related research
Keywords: Auctions; Contests; Litigation; Fee-Shifting;

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Find related papers by JEL classification:
D8 - Microeconomics - - Information, Knowledge, and Uncertainty
K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior

References listed on IDEAS
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.:

  1. Polinsky, A Mitchell & Rubinfeld, Daniel L, 1998. "Does the English Rule Discourage Low-Probability-of-Prevailing Plaintiffs?," Journal of Legal Studies, University of Chicago Press, vol. 27(2), pages 519-35, June.
    Other versions:
  2. Kathryn E. Spier, 1994. "Pretrial Bargaining and the Design of Fee-Shifting Rules," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 197-214, Summer. [Downloadable!] (restricted)
  3. Waldfogel, Joel, 1998. "Reconciling Asymmetric Information and Divergent Expectations Theories of Litigation," Journal of Law & Economics, University of Chicago Press, vol. 41(2), pages 451-76, October.
    Other versions:
  4. Che, Yeon-Koo & Gale, Ian, 1998. "Standard Auctions with Financially Constrained Bidders," Review of Economic Studies, Blackwell Publishing, vol. 65(1), pages 1-21, January. [Downloadable!] (restricted)
  5. Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  6. Hause, John C, 1989. "Indemnity, Settlement, and Litigation, or I'll Be Suing You," Journal of Legal Studies, University of Chicago Press, vol. 18(1), pages 157-79, January.
  7. Bebchuk, Lucian Arye & Chang, Howard F, 1996. "An Analysis of Fee Shifting Based on the Margin of Victory: On Frivolous Suits, Meritorious Suits, and the Role of Rule 11," Journal of Legal Studies, University of Chicago Press, vol. 25(2), pages 371-403, June.
    Other versions:
  8. Paul Klemperer, 2000. "Applying Auction Theory to Economics," Economics Series Working Papers 001, University of Oxford, Department of Economics. [Downloadable!]
  9. Spier, Kathryn E, 1992. "The Dynamics of Pretrial Negotiation," Review of Economic Studies, Blackwell Publishing, vol. 59(1), pages 93-108, January. [Downloadable!] (restricted)
  10. Schweizer, Urs, 1989. "Litigation and Settlement under Two-Sided Incomplete Information," Review of Economic Studies, Blackwell Publishing, vol. 56(2), pages 163-77, April. [Downloadable!] (restricted)
  11. Posner, Richard A, 1997. "Explaining the Variance in the Number of Tort Suits across U.S. States and between the United States and England," Journal of Legal Studies, University of Chicago Press, vol. 26(2), pages 477-89, June.
  12. Steven Shavell, 1981. "Suit and Settlement vs. Trial: A Theoretical Analysis under Alternative Methods for the Allocation of Legal Costs," NBER Working Papers 0662, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. A. Mitchell Polinsky & Daniel L. Rubinfeld, 1996. "Optimal Awards and Penalties When the Probability of Prevailing Varies Among Plaintiffs," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 269-280, Summer. [Downloadable!] (restricted)
    Other versions:
  14. Hughes, James W & Snyder, Edward A, 1995. "Litigation and Settlement under the English and American Rules: Theory and Evidence," Journal of Law & Economics, University of Chicago Press, vol. 38(1), pages 225-50, April.
  15. Steven A. Matthews, 1995. "A Technical Primer on Auction Theory I: Independent Private Values," Discussion Papers 1096, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  16. Snyder, Edward A & Hughes, James W, 1990. "The English Rule for Allocating Legal Costs: Evidence Confronts Theory," Journal of Law, Economics and Organization, Oxford University Press, vol. 6(2), pages 345-80, Fall.
  17. Jennifer F. Reinganum & Louise L. Wilde, 1986. "Settlement, Litigation, and the Allocation of Litigation Costs," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 557-566, Winter. [Downloadable!] (restricted)
  18. Cooter, Robert D & Rubinfeld, Daniel L, 1989. "Economic Analysis of Legal Disputes and Their Resolution," Journal of Economic Literature, American Economic Association, vol. 27(3), pages 1067-97, September. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, 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.)

  1. Kai A. Konrad & Wolfgang Leininger, 2006. "The generalized Stackelberg equilibrium of the all-pay auction with complete information," Discussion Papers in Economics 06_01, University of Dortmund, Department of Economics. [Downloadable!]
    Other versions:
  2. Giuseppe Dari-Mattiacci & Bruno Deffains, 2006. "Uncertainty of Law and the Legal Process," Working Papers of BETA 2006-11, Bureau d'Economie Théorique et Appliquée, ULP, Strasbourg. [Downloadable!]
    Other versions:
  3. Michael R. Baye & Dan Kovenock & Casper G. de Vries, 2008. "Contests with Rank-Order Spillovers," Working Papers 2008-20, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy. [Downloadable!]
    Other versions:
  4. Bertrand Chopard & Thomas Cortade & Eric Langlais, 2008. "Trial and settlement negotiations between asymmetrically skilled parties," EconomiX Working Papers 2008-32, University of Paris West - Nanterre la Défense, EconomiX. [Downloadable!]
    Other versions:
  5. Derek J. Clark & Kai A. Konrad, 2005. "Contests with multi-tasking," Discussion Papers 125, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich, revised May 2006. [Downloadable!]
    Other versions:
  6. Konrad, Kai A & Kovenock, Dan, 2005. "Equilibrium and Efficiency in the Tug-of-War," CEPR Discussion Papers 5205, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  7. Eric Langlais, 2008. "Asymmetric information, self-serving bias and the pretrial negotiation impasse," EconomiX Working Papers 2008-30, University of Paris West - Nanterre la Défense, EconomiX. [Downloadable!]
  8. Mehari Mekonnen Akalu, 2002. "Measuring and Ranking Value Drivers," Tinbergen Institute Discussion Papers 02-043/2, Tinbergen Institute. [Downloadable!]
  9. Guiseppe Dari-Mattiacci & Bruno Deffains, 2006. "Uncertainty of Law and the Legal Process," Tinbergen Institute Discussion Papers 06-071/1, Tinbergen Institute. [Downloadable!]
  10. Virginia Rosales-López, 2008. "Economics of court performance: an empirical analysis," European Journal of Law and Economics, Springer, vol. 25(3), pages 231-251, June. [Downloadable!] (restricted)
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