The "Rainmaker's Dilemma": Bad Debt Loss Insurance in Settlement and Litigation
In this paper, we analyze the impact of Bad Debt Loss Insurance on settlement outcomes. A huge success in a settlement or trial may turn into a disaster when the defendant goes bankrupt. "Rainmakers" face the following dilemma: the greater the success in court, the greater the defendant's bankruptcy risk. The starting point of our paper is a simple trial and litigation model with perfect and complete information. We add the possibility of a defendant's bankruptcy as well as Bad Debt Loss Insurance for both the settlement and the trial stage. We demonstrate that trial insurance and settlement insurance may have different impacts on the outcome of settlement negotiations. Trial insurance tends to increase the settlement result; therefore, it generates a contract rent for the insurer and the insured. Settlement insurance, however, can under certain conditions have the opposite effect: it may decrease the settlement result.
|Date of creation:||2005|
|Date of revision:|
|Contact details of provider:|| Postal: Postfach 151150, 66041 Saarbrücken|
Phone: *49(0)681-302 2132
Fax: *49(0)681-302 3591
Web page: http://www.uni-saarland.de/fak1/fr12/csle/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kirstein, Roland & Rickman, Neil, 2002.
""Third Party Contingency" contracts in settlement and litigation,"
CSLE Discussion Paper Series
2002-11, Saarland University, CSLE - Center for the Study of Law and Economics.
- Roland Kirstein & Neil Rickman, 2004. ""Third Party Contingency" Contracts in Settlement and Litigation," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 160(4), pages 555-, December.
- Roland Kirstein & Neil Rickman, . "Third Party Contingency contracts in settlement and litigation," German Working Papers in Law and Economics 2002-1-1038, Berkeley Electronic Press.
- Kirstein, Roland & Rickman, Neil, 2002. ""Third Party Contingency" contracts in settlement and litigation," Berkeley Olin Program in Law & Economics, Working Paper Series qt6vn9877z, Berkeley Olin Program in Law & Economics.
- Kirstein, Roland & Rickman, Neil, 2003. ""Third Party Contingency" contracts in settlement and litigation," CSLE Discussion Paper Series 2003-09, Saarland University, CSLE - Center for the Study of Law and Economics.
- Kirstein, Roland & Schmidtchen, Dieter, 1997.
"Judicial detection skill and contractual compliance,"
International Review of Law and Economics,
Elsevier, vol. 17(4), pages 509-520, December.
- Kirstein, Roland & Schmidtchen, Dieter, 1997. "Judicial Detection Skill and Contractual Compliance," CSLE Discussion Paper Series 97-07, Saarland University, CSLE - Center for the Study of Law and Economics.
- Roland Kirstein, 2000.
"Risk Neutrality and Strategic Insurance,"
The Geneva Papers on Risk and Insurance - Issues and Practice,
Palgrave Macmillan, vol. 25(2), pages 251-261, April.
- Kidwell, David S. & Sorensen, Eric H. & Wachowicz, John M., 1987. "Estimating the Signaling Benefits of Debt Insurance: The Case of Municipal Bonds," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(03), pages 299-313, September.
- Cooter, Robert D & Rubinfeld, Daniel L, 1989. "Economic Analysis of Legal Disputes and Their Resolution," Journal of Economic Literature, American Economic Association, vol. 27(3), pages 1067-97, September.
When requesting a correction, please mention this item's handle: RePEc:zbw:csledp:200502. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.