Jackpot Justice: The Value of Inefficient Litigation
Litigation seems to be a Pareto-ineffcient outcome of pretrial bargaining; however, this paper shows that litigation can be the outcome of rational behavior by a litigant and her attorney. If the attorney has more information than his client concerning the characteristics of the lawsuit, the client can use litigation as a way of extracting information. I show that, counterintuitively, litigation will occur only when the plaintiff is pessimistic about her prospects at trial. Even if the plaintiff could obtain a higher payoff from bargaining than from litigation-without-bargaining, bargaining may not occur in equilibrium. The plaintiff is more likely to sue if she is more pessimistic about winning damage in court and if litigation is more risky. Litigation is less likely to occur if the plaintiff receives third party financing for litigation.
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- Theodore Eisenberg & Henry S. Farber, 1996. "The Litigious Plaintiff Hypothesis: Case Selection and Resolution," NBER Working Papers 5649, National Bureau of Economic Research, Inc.
- Farmer, Amy & Pecorino, Paul, 2002. "Pretrial bargaining with self-serving bias and asymmetric information," Journal of Economic Behavior & Organization, Elsevier, vol. 48(2), pages 163-176, June.
- Strausz, Roland, 2004. "Deterministic versus Stochastic Mechanisms in Principalâ€“Agent Models," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 26, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- I.P.L. P'ng, 1983. "Strategic Behavior in Suit, Settlement, and Trial," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 539-550, Autumn.
- Swanson, Timothy & Mason, Robin, 1998. "Nonbargaining in the shadow of the law," International Review of Law and Economics, Elsevier, vol. 18(2), pages 121-140, June.
- Siegelman, Peter & Waldfogel, Joel, 1999. "Toward a Taxonomy of Disputes: New Evidence through the Prism of the Priest/Klein Model," The Journal of Legal Studies, University of Chicago Press, vol. 28(1), pages 101-130, January.
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