Trial Incentives in Sequential Litigation

35 Pages Posted: 18 Jan 2012 Last revised: 1 May 2012

See all articles by Dan Bernhardt

Dan Bernhardt

University of Illinois at Urbana-Champaign - Department of Economics

Frances Xu

The University of Hong Kong

Date Written: April 29, 2012

Abstract

We analyze when and why trials can emerge in equilibrium when a defendant may sequentially face multiple plaintiffs. Subsequent potential plaintiffs learn about their chances of winning from the initial trial outcome. A trial in the initial case is like an experiment that the defendant can run that would induce plaintiffs’ learning. We show that the initial case can go to trial in equilibrium when a favorable trial outcome for the defense can deter potential future plaintiffs from filing lawsuits. The possibility of non-meritorious lawsuits further raises the attraction of trials. We also show that when the initial plaintiff’s attorney may represent future clients, trials are more likely both because the attorney gains from learning, and because his ability to attract future clients may depend on how much his initial client receives.

Keywords: Trial, Settlement, Multiple Plaintiffs, Sequential Litigation, Learning

JEL Classification: K41

Suggested Citation

Bernhardt, Dan and Xu, Frances, Trial Incentives in Sequential Litigation (April 29, 2012). Available at SSRN: https://ssrn.com/abstract=1987266 or http://dx.doi.org/10.2139/ssrn.1987266

Dan Bernhardt

University of Illinois at Urbana-Champaign - Department of Economics ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
217-244-5708 (Phone)

Frances Xu (Contact Author)

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

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