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Optimal litigation strategies with observable case preparation

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  • Choné, Philippe
  • Linnemer, Laurent

Abstract

This paper investigates the strategic effects of case preparation in litigation. Specifically, it shows how the pretrial efforts incurred by one party may alter its adversary's incentives to settle. We build a sequential game with one-sided asymmetric information where the informed party first decides to invest in case preparation, and the uninformed party then makes a settlement offer. Overinvestment, or bluff, always prevails in equilibrium: with positive probability, plaintiffs with weak cases take a chance on investing, and regret it in case of trial. Furthermore, due to the endogenous investment decision, the probability of trial may (locally) decrease with case strength. Overinvestment generates inefficient preparation costs, but may trigger more settlements, thereby reducing trial costs.

Suggested Citation

  • Choné, Philippe & Linnemer, Laurent, 2010. "Optimal litigation strategies with observable case preparation," Games and Economic Behavior, Elsevier, vol. 70(2), pages 271-288, November.
    • Handle: RePEc:eee:gamebe:v:70:y:2010:i:2:p:271-288
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    3. Ohlendorf, Susanne & Schmitz, Patrick, 2009. "Signaling an Outside Option," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 281, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    4. Thomas D. Jeitschko & Byung-Cheol Kim, 2013. "Signaling, Learning, and Screening Prior to Trial: Informational Implications of Preliminary Injunctions," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 29(5), pages 1085-1113, October.
    5. 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.
    6. Shaun Larcom & Mare Sarr, 2018. "On the Perils of Commitment to Punishment when Criminals Are Strategic," The Journal of Legal Studies, University of Chicago Press, vol. 47(2), pages 391-418.
    7. Morin Chassé, Rémi, 2019. "Strategic behavior in environmental contests with asymmetric ability and reimbursement," International Review of Law and Economics, Elsevier, vol. 58(C), pages 115-126.

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