Trial and Settlement Negotiations between Asymmetrically Skilled Parties

30 Pages Posted: 8 Jun 2008 Last revised: 4 May 2010

See all articles by Eric Langlais

Eric Langlais

EconomiX, CNRS & University of Paris Ouest

Bertrand Chopard

University of Angers - Bureau of Economic Theory and Application (BETA)

Thomas Cortade

University of Montpellier

Date Written: June 17, 2008

Abstract

Parties engaged in a litigation generally enter the discovery process with different informations regarding their case and/or an unequal endowment in terms of skill and ability to produce evidence and predict the outcome of a trial. Hence, they have to bear different legal costs to assess the (equilibrium) plaintiff's win rate. The paper analyses pretrial negotiations and revisits the selection hypothesis in the case where these legal expenditures are private information. This assumption is consistent with empirical evidence (Osborne, 1999). Two alternative situations are investigated, depending on whether there exists a unilateral or a bilateral informational asymmetry.

Our general result is that efficient pretrial negotiations select cases with the smallest legal expenditures as those going to trial, while cases with largest costs prefer to settle. Under the one-sided asymmetric information assumption, we find that the American rule yields more trials and higher aggregate legal expenditures than the French and British rules. The two-sided case leads to a higher rate of trials, but in contrast provides less clear-cut predictions regarding the influence of fee-shifting.

Keywords: litigation, unilateral and bilateral asymmetric

JEL Classification: D81, K42

Suggested Citation

Langlais, Eric and Chopard, Bertrand and Cortade, Thomas, Trial and Settlement Negotiations between Asymmetrically Skilled Parties (June 17, 2008). International Review of Law and Economics, Vol. 30, No 1, pp 18-27, March 2010, Available at SSRN: https://ssrn.com/abstract=1141882 or http://dx.doi.org/10.2139/ssrn.1141882

Eric Langlais (Contact Author)

EconomiX, CNRS & University of Paris Ouest ( email )

200 Avenue de la République
Nanterre, 92200
France

HOME PAGE: http://economix.u-paris10.fr/fr/membres/?id=889

Bertrand Chopard

University of Angers - Bureau of Economic Theory and Application (BETA) ( email )

13, Place Carnot
Strasbourg, 67000
France

Thomas Cortade

University of Montpellier ( email )

Avenue de la Mer Site Richter
163 Rue Auguste Broussonnet
Montpellier, Cedex 2 34090
France

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