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Optimal litigation strategies with observable case preparation

  • Choné, Philippe
  • Linnemer, Laurent

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.

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File URL: http://www.sciencedirect.com/science/article/B6WFW-4YN5PHC-1/2/ba3b61df27749a8265a035af13b9a8a5
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Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 70 (2010)
Issue (Month): 2 (November)
Pages: 271-288

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Handle: RePEc:eee:gamebe:v:70:y:2010:i:2:p:271-288
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622836

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  17. Kaplan, David S. & Sadka, Joyce & Silva-Mendez, Jorge Luis, 2007. "Litigation and settlement : new evidence from labor courts in Mexico," Policy Research Working Paper Series 4434, The World Bank.
  18. Amy Farmer & Paul Pecorino, 2005. "Civil Litigation with Mandatory Discovery and Voluntary Transmission of Private Information," The Journal of Legal Studies, University of Chicago Press, vol. 34(1), pages 137-159, 01.
  19. Schweizer, Urs, 1989. "Litigation and Settlement under Two-Sided Incomplete Information," Review of Economic Studies, Wiley Blackwell, vol. 56(2), pages 163-77, April.
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