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Trial and settlement negotiations between asymmetrically skilled parties

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  • Chopard, Bertrand
  • Cortade, Thomas
  • Langlais, Eric

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.

Suggested Citation

  • Chopard, Bertrand & Cortade, Thomas & Langlais, Eric, 2008. "Trial and settlement negotiations between asymmetrically skilled parties," MPRA Paper 8995, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:8995
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    Cited by:

    1. 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.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    6. Luca Anderlini & Leonardo Felli & Giovanni Immordino, 2016. "Costly Pretrial Agreements," CSEF Working Papers 449, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.

    More about this item

    Keywords

    litigation; unilateral and bilateral asymmetric information; legal expenditures;

    JEL classification:

    • D0 - Microeconomics - - General
    • K0 - Law and Economics - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process

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