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Credible discovery, settlement, and negative expected value suits

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  • Warren F. Schwartz
  • Abraham L. Wickelgren

Abstract

We introduce discovery into a model of settlement and negative expected value (NEV) suits under asymmetric information. The option to conduct discovery has several important effects. First, because discovery is cheaper than litigation, it reduces the defendant's incentive to settle under asymmetric information. Second, discovery must be credible. Because discovery is more valuable the greater the uncertainty it resolves, this introduces a credibility constraint on pre-discovery settlement offers. This can further reduce the probability and size of a defendant's pre-discovery settlement offer. Lastly, discovery reduces the ability of NEV plaintiffs to use asymmetric information to extract significant settlements from defendants. Copyright (c) 2009, RAND.

Suggested Citation

  • Warren F. Schwartz & Abraham L. Wickelgren, 2009. "Credible discovery, settlement, and negative expected value suits," RAND Journal of Economics, RAND Corporation, vol. 40(4), pages 636-657.
  • Handle: RePEc:bla:randje:v:40:y:2009:i:4:p:636-657
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    References listed on IDEAS

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    Cited by:

    1. Choné, Philippe & Linnemer, Laurent, 2010. "Optimal litigation strategies with observable case preparation," Games and Economic Behavior, Elsevier, vol. 70(2), pages 271-288, November.
    2. Baumann, Florian & Friehe, Tim, 2014. "On discovery, restricting lawyers, and the settlement rate," DICE Discussion Papers 155, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    3. Andrew F. Daughety & Reinganum F. Reinganum, 2014. "Settlement and Trial: Selected Analyses of the Bargaining Environment," Vanderbilt University Department of Economics Working Papers 14-00005, Vanderbilt University Department of Economics.
    4. Amy Farmer & Paul Pecorino, 2013. "Discovery and Disclosure with Asymmetric Information and Endogenous Expenditure at Trial," The Journal of Legal Studies, University of Chicago Press, vol. 42(1), pages 223-247.

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