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Trial and settlement negotiations between asymmetrically skilled parties

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  • Thomas Cortade

    (MRE - Montpellier Recherche en Economie - UM - Université de Montpellier)

  • Bertrand Chopard

    (EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Eric Langlais

    (EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

Parties engaged in a litigation generally enter the discovery process with different informations regarding their case and/or an unequal endowment in terms of skill and ability to produce evidence and predict the outcome of a trial. Hence, they have to bear different legal costs to assess the (equilibrium) plaintiff’s win rate. The paper analyses pretrial negotiations and revisits the selection hypothesis in the case where these legal expenditures are private information. This assumption is consistent with empirical evidence (Osborne, 1999). Two alternative situations are investigated, depending on whether there exists a unilateral or a bilateral informational asymmetry. Our general result is that efficient pretrial negotiations select cases with the smallest legal expenditures as those going to trial, while cases with largest costs prefer to settle. Under the one-sided asymmetric information assumption, we find that the American rule yields more trials and higher aggregate legal expenditures than the French and British rules. The two-sided case leads to a higher rate of trials, but in contrast provides less clear-cut predictions regarding the influence of fee-shifting.
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Suggested Citation

  • Thomas Cortade & Bertrand Chopard & Eric Langlais, 2010. "Trial and settlement negotiations between asymmetrically skilled parties," Post-Print hal-01815022, HAL.
  • Handle: RePEc:hal:journl:hal-01815022
    DOI: 10.1016/j.irle.2009.06.004
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01815022
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    2. Ormosi, Peter L., 2012. "Tactical dilatory practice in litigation: Evidence from EC merger proceedings," International Review of Law and Economics, Elsevier, vol. 32(4), pages 370-377.
    3. Morin Chassé, Rémi, 2019. "Strategic behavior in environmental contests with asymmetric ability and reimbursement," International Review of Law and Economics, Elsevier, vol. 58(C), pages 115-126.
    4. Berlemann, Michael & Christmann, Robin, 2019. "Determinants of in-court settlements: empirical evidence from a German trial court," Journal of Institutional Economics, Cambridge University Press, vol. 15(1), pages 143-162, February.
    5. Chopard, Bertrand & Cortade, Thomas & Langlais, Eric, 2010. "Trial and settlement negotiations between asymmetrically skilled parties," International Review of Law and Economics, Elsevier, vol. 30(1), pages 18-27, March.
    6. Schwab, Christian & Tang, Hin-Yue Benny, 2011. "Die Steuerungswirkungen unterschiedlicher Prozesskostenregelungen: Ein Überblick zum Stand von Theorie und Empirie [The economic effects of alternative fee shifting rules: A review of the theoretic," MPRA Paper 32746, University Library of Munich, Germany.
    7. Juranek, Steffen, 2018. "Investing in legal advice," Information Economics and Policy, Elsevier, vol. 44(C), pages 28-46.
    8. Peter L Ormosi, 2011. "Tactical Dilatory Practice in Litigation: Evidence from EC Merger Proceedings," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2011-12, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    9. McLeod, Alex, 2021. "Discovery, disclosure, and confidence," International Review of Law and Economics, Elsevier, vol. 66(C).
    10. Giorgio Rampa & Margherita Saraceno, 2018. "Accuracy and Costs of Dispute Resolution with Heterogeneous Consumers. A Conjectural Approach to Mass Litigation," DEM Working Papers Series 155, University of Pavia, Department of Economics and Management.
    11. Duy Vu, 2018. "To Settle or to Fight to the End? Case-level Determinants of Early Settlement of Investor-State Disputes," GREDEG Working Papers 2018-36, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France, revised Feb 2020.
    12. Vu Duy, 2021. "To Settle or to Fight to the End? Case-level Determinants of Early Settlement of Investor-State Disputes," Review of Law & Economics, De Gruyter, vol. 17(1), pages 133-166, March.
    13. Bertrand Chopard & Thomas Cortade & Eric Langlais, 2014. "On patent strength, litigation costs, and patent disputes under alternative damage rules," EconomiX Working Papers 2014-41, University of Paris Nanterre, EconomiX.
    14. Bertrand Chopard & Thomas Cortade & Eric Langlais, 2013. "Damage rules and the patent hold-up problem : An analysis of Article L. 615-7," EconomiX Working Papers 2013-37, University of Paris Nanterre, EconomiX.
    15. Dari-Mattiacci, Giuseppe & Saraceno, Margherita, 2020. "Fee shifting and accuracy in adjudication," International Review of Law and Economics, Elsevier, vol. 63(C).

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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly

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