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Litigation with a Variable Cost of Trial

Author

Listed:
  • Farmer Amy

    (Department of Economics, University of Arkansas, Fayetteville, AR 72701, USA)

  • Pecorino Paul

    (Department of Economics, Finance and Legal Studies, University of Alabama, Tuscaloosa, AL 35487–0224, USA)

Abstract

We develop a model of pretrial bargaining under asymmetric information where both the plaintiff and the defendant’s cost of proceeding to trial is an increasing function of the judgment at trial. This contrasts with the standard assumption that costs at trial are a constant. As a result of this assumption, fee shifting can affect the incidence of trial in a model in which it would otherwise have no effect. Fee shifting will increase the incidence of trial if the plaintiff expects to shift the variable costs of trial to the defendant on net and will lower the incidence of trial if the defendant expects to shift these costs to the plaintiff. The model also implies that a reallocation of the variable costs of trial from the defendant to the plaintiff will lower the incidence of trial.

Suggested Citation

  • Farmer Amy & Pecorino Paul, 2016. "Litigation with a Variable Cost of Trial," Review of Law & Economics, De Gruyter, vol. 12(2), pages 203-226, July.
    • Handle: RePEc:bpj:rlecon:v:12:y:2016:i:2:p:203-226:n:5
    DOI: 10.1515/rle-2015-0004
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    References listed on IDEAS

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    Cited by:

    1. Ben Chen & José A. Rodrigues-Neto, 2023. "The interaction of emotions and cost-shifting rules in civil litigation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 75(3), pages 841-885, April.
    2. Ben Chen & José A. Rodrigues-Neto, 2017. "Cost Shifting in Civil Litigation: A General Theory," ANU Working Papers in Economics and Econometrics 2017-651, Australian National University, College of Business and Economics, School of Economics.
    3. Ben Chen & Jose A. Rodrigues Neto, 2017. "Emotions in Civil Litigation," ANU Working Papers in Economics and Econometrics 2017-653, Australian National University, College of Business and Economics, School of Economics.

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