Optimal Litigation Strategies with Signaling and Screening
This paper examines 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, or not, 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.
(This abstract was borrowed from another version of this item.)
|Date of creation:||2008|
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- Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn.
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- Davis S. Kaplan & Joyce Sadka & Jorge Luis Silva-Mendez, 2006.
"Litigation and Settlement: New Evidence from Labor Courts in Mexico,"
0606, Centro de Investigacion Economica, ITAM.
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- Joel L. Schrag, 1999. "Managerial Judges: An Economic Analysis of the Judicial Management of Legal Discovery," RAND Journal of Economics, The RAND Corporation, vol. 30(2), pages 305-323, Summer.
- Hay, Bruce L, 1995. "Effort, Information, Settlement, Trial," The Journal of Legal Studies, University of Chicago Press, vol. 24(1), pages 29-62, January.
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