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Costly Pre-Trial Agreements

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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 lawsuit even though the parties fully anticipate that it will be settled out of Court. Second, the "likelihood" that a given lawsuit ends up in Court 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 lawsuit in the first place. It does not affect whether it is settled before trial or litigated in Court.

Suggested Citation

  • Luca Anderlini & Leonardo Felli & Giovanni Immordino, 2018. "Costly Pre-Trial Agreements," Working Papers gueconwpa~18-18-11, Georgetown University, Department of Economics.
    • Handle: RePEc:geo:guwopa:gueconwpa~18-18-11
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    Cited by:

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    2. Ben Chen & José A. Rodrigues-Neto, 2023. "The interaction of emotions and cost-shifting rules in civil litigation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 75(3), pages 841-885, April.
    3. 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

    Pre-Trial Agreements; Costly Negotiation; Court Litigation;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
    • 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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