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A unified model of settlement and trial expenditures: The PriestâKlein model extended

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  • Poitras, Marc
  • Frasca, Ralph

Abstract

Settlement and trial expenditures are crucially interrelated. The literature on settlement, however, takes no account of models of trial. In this paper, we develop a unified model of settlement and trial expenditures. We do this by discarding the usual assumption of settlement models that trial costs are constant across cases. Instead, we follow the literature on trial by permitting trial costs to vary with the legal merit of the plaintiff's case. Our approach can be used to extend standard models of settlement such as the well-known PriestâKlein model as well as models based on asymmetric information. As a demonstration, we extend the PriestâKlein model and generally overturn that model's canonical results. In particular, we show that even in a fully symmetric model, predicted win rates at trial can deviate substantially from 50 percent. Furthermore, win rates will vary in response to legal reforms that shift the decision standard.

Suggested Citation

  • Poitras, Marc & Frasca, Ralph, 2011. "A unified model of settlement and trial expenditures: The PriestâKlein model extended," International Review of Law and Economics, Elsevier, vol. 31(3), pages 188-195, September.
  • Handle: RePEc:eee:irlaec:v:31:y:2011:i:3:p:188-195
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    References listed on IDEAS

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    Cited by:

    1. 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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