N-Defendant Litigation and Settlement: The Impact of Joint and Several Liability
Lewis A. Kornhauser
New York University School of Law
Keith T. Takeda
October 1, 2007
NYU Law and Economics Research Paper No. 07-41
This article generalizes the analysis of settlement under joint and several liability from lawsuits involving one plaintiff and two defendants to those involving n≥2 defendants. We demonstrate that, depending upon the correlation of outcomes among the defendants, but regardless of the distribution of liability shares, joint and several liability may encourage plaintiffs to select some defendants for litigation while settling with those remaining. In particular, under joint and several liability, when each defendant is grouped with others sharing correlated outcomes, and the plaintiff's probability of success against any defendant is sufficiently high, we show that, in all Nash equilibrium, the plaintiff litigates against the defendant from each group with the smallest share and settles with all other defendants. There are a continuum of equilibria but they are all payoff-equivalent up to permutation. Plaintiff's payoff is identical in all equilibria; only the payoffs of the members with the smallest share within a group are permuted. We also show that, for sufficiently high plaintiff's probability of success, this result holds even when the defendants are allowed to form coalitions, and derive the set of offers in the behaviorally unique coalition proof Nash equilibrium; as before, these offers induce litigation against the defendant with the smallest share in each group and settlement with all other defendants.
Number of Pages in PDF File: 33
Keywords: joint and several liability, settlement, litigation, tort, hazardous waste regulation
JEL Classification: K13, K41, K32, C78working papers series
Date posted: October 8, 2007 ; Last revised: December 5, 2008
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