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Costly Pretrial Agreements

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  • Anderlini, Luca
  • Felli, Leonardo
  • Immordino, Giovanni

Abstract

Settling a legal dispute involves some costs that the parties have to incur ex-ante, for the pretrial negotiation and possible agreement to become feasible. Even in a full information world, if the distribution of these costs is sufficiently mismatched with the distribution of the parties' bargaining powers, a pretrial agreement may never be reached even though actual Court litigation is overall wasteful. Our results shed light on two key issues. First, a Plaintiff may initiate a law suit even though the parties fully anticipate that it will be settled out of Court. Second, the "likelihood" that a given law suit goes to trial is unaffected by how trial costs are distributed among the litigants. The choice of fee-shifting rule can only affect whether the Plaintiff files a law suit in the first place. It does not affect whether it is settled before trial or litigated in Court.

Suggested Citation

  • Anderlini, Luca & Felli, Leonardo & Immordino, Giovanni, 2018. "Costly Pretrial Agreements," CEPR Discussion Papers 13074, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:13074
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    Cited by:

    1. Müller, Daniel & Schmitz, Patrick W., 2017. "Optimal ownership of public goods in the presence of transaction costs," Economics Letters, Elsevier, vol. 152(C), pages 88-92.

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    More about this item

    Keywords

    Costly Negotiations; Court Litigation; Pretrial Agreements;
    All these keywords.

    JEL classification:

    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics

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