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Why go to court? Bargaining failure under the shadow of trial with complete information

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  • McBride, Michael
  • Skaperdas, Stergios
  • Tsai, Pi-Han

Abstract

Why do legal disputes ever go to trial? Prior research emphasizes the role of mistakes, irrationalities, or asymmetric information because rational litigants with complete or symmetric information should choose pre-trial settlements over the costs and risks of trial. Using a dynamic incomplete-contracting framework, we provide an overlooked rationale for going to court. Even though risky and costly, going to court can be both rational and socially efficient when a court decision enhances property rights and deters future costly litigation. Experimental evidence supports these predictions. Our findings provide new insights into the incidence of litigation and trial.

Suggested Citation

  • McBride, Michael & Skaperdas, Stergios & Tsai, Pi-Han, 2018. "Why go to court? Bargaining failure under the shadow of trial with complete information," European Journal of Political Economy, Elsevier, vol. 55(C), pages 151-168.
  • Handle: RePEc:eee:poleco:v:55:y:2018:i:c:p:151-168
    DOI: 10.1016/j.ejpoleco.2017.12.001
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    Cited by:

    1. McBride, Michael & Skaperdas, Stergios, 2014. "Conflict, settlement, and the shadow of the future," Journal of Economic Behavior & Organization, Elsevier, vol. 105(C), pages 75-89.
    2. Yang, Erya, 2020. "Optimism and pessimism in bargaining and contests," International Review of Law and Economics, Elsevier, vol. 64(C).
    3. Garfinkel, Michelle R. & Syropoulos, Constantinos, 2015. "Trade openness and the settlement of domestic disputes in the shadow of the future," Research in Economics, Elsevier, vol. 69(2), pages 191-213.

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    More about this item

    Keywords

    Litigation; Court; Conflict; Contests;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • K11 - Law and Economics - - Basic Areas of Law - - - Property Law
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process

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