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Judicial Detection Skill, Litigational Opportunism, and Contractual Compliance

Author

Listed:
  • Schmidtchen, Dieter
  • Kirstein, Roland

Abstract

Mutually beneficial agreements might fail if the parties fear contractual opportunism. Litigation is supposed to prevent this, but still leaves room for litigational opportunism: Even knowing that the opponent has fulfilled his obligations, a party might bring suit. We show that with positive judicial detection skill, litigation fees can be designed to deter opportunistic suits and simultaneously induce bilateral contractual compliance. With zero detection skill, as implicitly assumed by most of the economic literature on litigation, bilateral contractual compliance cannot be induced. We apply our results to evaluate the American and the British cost allocation rules.

Suggested Citation

  • Schmidtchen, Dieter & Kirstein, Roland, 1996. "Judicial Detection Skill, Litigational Opportunism, and Contractual Compliance," CSLE Discussion Paper Series 96-04, Saarland University, CSLE - Center for the Study of Law and Economics.
  • Handle: RePEc:zbw:csledp:9604
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    Cited by:

    1. 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.

    More about this item

    Keywords

    procedural law; frivolous suits; positive detection skill; verifiability; litigation costs; American rule; British rule;

    JEL classification:

    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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