A Dynamic Model of Lawsuit Joinder and Settlement

48 Pages Posted: 11 Aug 2009  

Andrew F. Daughety

Department of Economics, Vanderbilt University; Vanderbilt University - Law School

Jennifer F. Reinganum

Vanderbilt University - College of Arts and Science - Department of Economics; Vanderbilt University - Law School

Date Written: July 1, 2009

Abstract

In this paper we examine a dynamic model of the process by which multiple related lawsuits may be filed and combined; we also examine actions a defendant may employ that may disrupt the formation of a joint suit. Our initial model involves two potential plaintiffs, with private information about the harm they have suffered, in a multi-period setting with positive costs of filing a suit. If two plaintiffs file, they join their suits to obtain a lower per-plaintiff trial cost and a higher likelihood of prevailing against the defendant. We find that some plaintiff types never file, some wait to see if another victim files and only then file, some file early and then drop their suits if not joined by another victim and, finally, some file and pursue their suits whether or not they are joined; thus, the equilibrium resembles a 'bandwagon.'

We then consider the effect of allowing preemptive settlement offers by the defendant aimed at discouraging follow-on suits. Preemptive settlement results in a 'gold rush' of cases into the first period. In general, plaintiffs (ex ante) strictly prefer that such preemptive settlements not be allowed, and computational results suggest this may be broadly true for defendants as well; however, the inability of defendants to commit to such a policy results in an equilibrium with preemptive settlement. Finally, we consider partial unawareness of victims as to the source of harm; this provides a role for plaintiffs’ attorneys, who may seek additional victims to join a combined lawsuit. Confidential preemptive settlements in the case of partial unawareness restrict the plaintiff’s attorney from seeking additional victims and therefore leads to higher preemptive settlement amounts. Moreover, the defendant strictly prefers to employ preemptive settlement if the fraction of unaware victims is sufficiently high.

Keywords: Lawsuits, Settlement, Aggregation, Dynamics

JEL Classification: K41, D82

Suggested Citation

Daughety, Andrew F. and Reinganum, Jennifer F., A Dynamic Model of Lawsuit Joinder and Settlement (July 1, 2009). Available at SSRN: https://ssrn.com/abstract=1446904 or http://dx.doi.org/10.2139/ssrn.1446904

Andrew F. Daughety (Contact Author)

Department of Economics, Vanderbilt University ( email )

PMB 351819
2301 Vanderbilt Place
Nashville, TN 37235-1819
United States
615-322-3453 (Phone)
615-343-8495 (Fax)

HOME PAGE: http://my.vanderbilt.edu/andrewdaughety/

Vanderbilt University - Law School

131 21st Avenue South
Nashville, TN 37203-1181
United States

Jennifer F. Reinganum

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

Box 1819 Station B
Nashville, TN 37235
United States
615-322-2937 (Phone)
615-343-8495 (Fax)

Vanderbilt University - Law School

131 21st Avenue South
Nashville, TN 37203-1181
United States

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