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Litigation and Settlement under Judicial Agency

Author

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  • Levent Koçkesen

    () (Koc University)

  • Murat Usman

    () (Koc University)

Abstract

We model the settlement of a legal dispute where the trial outcome depends on the behavior of a strategically motivated judge. We consider a standard asymmetric information model where the uninformed defendant makes a take it or leave it offer. If the case goes to trial, the judge decides how much effort to exert to learn about the actual damages inflicted on the plaintiff. We show that under very general assumptions the model exhibits multiple equilibria. In equilibria in which the judge exerts less effort more cases settle out of court, and vice versa. The judge is better off in low effort equilibria, with a higher settlement rate. However, the terms of the settlement heavily favor the informed plaintiff, and consequently induce over-investment in ex ante preventive care by the defendant.

Suggested Citation

  • Levent Koçkesen & Murat Usman, 2011. "Litigation and Settlement under Judicial Agency," Koç University-TUSIAD Economic Research Forum Working Papers 1121, Koc University-TUSIAD Economic Research Forum.
  • Handle: RePEc:koc:wpaper:1121
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    File URL: http://eaf.ku.edu.tr/sites/eaf.ku.edu.tr/files/erf_wp_1121.pdf
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    References listed on IDEAS

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    Cited by:

    1. Berlemann, Michael & Christmann, Robin, 2014. "Determinants of In-Court Settlements Empiricial Evidence from a German Trial Court," Working Paper 155/2014, Helmut Schmidt University, Hamburg.

    More about this item

    Keywords

    Litigation; settlement; trial; judges;

    JEL classification:

    • K00 - Law and Economics - - General - - - General (including Data Sources and Description)
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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