Optimal Litigation Strategies with Signaling and Screening

43 Pages Posted: 7 Jul 2008

See all articles by Philippe Choné

Philippe Choné

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST); CESifo (Center for Economic Studies and Ifo Institute)

Laurent Linnemer

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST)

Date Written: June 2008

Abstract

This paper examines the strategic effects of case preparation in litigation. Specifically, it shows how the pretrial efforts incurred by one party may alter its adversary's incentives to settle. We build a sequential game with one-sided asymmetric information where the informed party first decides to invest, or not, in case preparation, and the uninformed party then makes a settlement offer. Overinvestment, or bluff, always prevails in equilibrium: with positive probability, plaintiffs with weak cases take a chance on investing, and regret it in case of trial. Furthermore, due to the endogenous investment decision, the probability of trial may (locally) decrease with case strength. Overinvestment generates inefficient preparation costs, but may trigger more settlements, thereby reducing trial costs.

Keywords: case preparation, settlement, trial, signaling

JEL Classification: K41

Suggested Citation

Choné, Philippe and Linnemer, Laurent, Optimal Litigation Strategies with Signaling and Screening (June 2008). CESifo Working Paper Series No. 2334, Available at SSRN: https://ssrn.com/abstract=1156270 or http://dx.doi.org/10.2139/ssrn.1156270

Philippe Choné

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Laurent Linnemer (Contact Author)

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
71
Abstract Views
505
rank
439,687
PlumX Metrics