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Why Go to Court? Bargaining Failure under the Shadow of Trial with Complete Information

  • Michael McBride


    (Department of Economics, University of California-Irvine)

  • Stergios Skaperdas


    (Department of Economics, University of California-Irvine)

  • Pi-Han Tsai


    (Department of Economics, University of California-Irvine)

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.

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Paper provided by University of California-Irvine, Department of Economics in its series Working Papers with number 131406.

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Length: 44 pages
Date of creation: May 2014
Date of revision:
Handle: RePEc:irv:wpaper:131406
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  1. Landes, William M, 1971. "An Economic Analysis of the Courts," Journal of Law and Economics, University of Chicago Press, vol. 14(1), pages 61-107, April.
  2. Stergios Skaperdas & Samarth Vaidya, 2008. "Persuasion as a Contest," Economics Series 2008_07, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
  3. Farmer, Amy & Pecorino, Paul, 1999. " Legal Expenditure as a Rent-Seeking Game," Public Choice, Springer, vol. 100(3-4), pages 271-88, September.
  4. repec:att:wimass:9120 is not listed on IDEAS
  5. Powell, Robert, 2006. "War as a Commitment Problem," International Organization, Cambridge University Press, vol. 60(01), pages 169-203, January.
  6. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  7. Garfinkel, M.R. & Skaperdas, S., 2000. "Conflict without Misperceptions or Incomplete Information: how the Future Matters," Papers 99-00-11, California Irvine - School of Social Sciences.
  8. George L. Priest & Benjamin Klein, 1984. "The Selection of Disputes for Litigation," The Journal of Legal Studies, University of Chicago Press, vol. 13(1), pages 1-56, January.
  9. Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn.
  10. Che, Yeon-Koo & Yi, Jong Goo, 1993. "The Role of Precedents in Repeated Litigation," Journal of Law, Economics and Organization, Oxford University Press, vol. 9(2), pages 399-424, October.
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