Abstract

http://ssrn.com/abstract=2195749
 
 

References (29)



 
 

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The Role of Costly Litigation in Repeat Interactions


Scott Baker


Washington University in Saint Louis - School of Law

Albert H. Choi


University of Virginia School of Law

August 19, 2015

Virginia Law and Economics Research Paper No. 2013-02
Washington University in St. Louis Legal Studies Research Paper No. 13-03-01

Abstract:     
The paper analyzes the optimal incentive system when both legal and relational sanctions are imperfect. A firm sells a good to a sequence of consumers where the firm’s unobservable effort affects the good’s quality. To solve the commitment problem, the firm can promise to pay damages or induce relational sanctions. Both types of sanctions are costly, but legal sanctions have an advantage over relational sanctions. While raising damages creates both marginal (additional lawsuits) and infra-marginal incentive effects (bigger recovery to existing lawsuits), raising relational sanctions lacks the infra-marginal effect. Extensions, including litigation’s informational role and warranties, are also examined.

Number of Pages in PDF File: 32

JEL Classification: D86, K12, L14


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Date posted: January 2, 2013 ; Last revised: August 21, 2015

Suggested Citation

Baker, Scott and Choi, Albert H., The Role of Costly Litigation in Repeat Interactions (August 19, 2015). Virginia Law and Economics Research Paper No. 2013-02; Washington University in St. Louis Legal Studies Research Paper No. 13-03-01. Available at SSRN: http://ssrn.com/abstract=2195749 or http://dx.doi.org/10.2139/ssrn.2195749

Contact Information

Scott A. Baker
Washington University in Saint Louis - School of Law ( email )
Campus Box 1120
St. Louis, MO 63130
United States
Albert H. Choi (Contact Author)
University of Virginia School of Law ( email )
580 Massie Road
Charlottesville, VA 22903
United States

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