Reconciling Asymmetric Information and Divergent Expectations Theories of Litigation

32 Pages Posted: 13 Jul 2000 Last revised: 8 Oct 2010

See all articles by Joel Waldfogel

Joel Waldfogel

University of Minnesota - Twin Cities - Carlson School of Management; National Bureau of Economic Research (NBER); University of Minnesota - Twin Cities - Department of Economics

Date Written: February 1998

Abstract

Both asymmetric information (AI) and divergent expectations (DE) theories offer possible explanations of the litigation puzzle. Under DE, cases proceed to trial when, by chance, the plaintiff is more optimistic than the defendant. As the fraction of cases tried (T) declines, this leads to a tendency toward 50 percent plaintiff win rates at trial (P), regardless of the fraction of plaintiff winners in the filed population. Under AI, by contrast, informed parties proceed to trial only when they expect to win. Hence, as the fraction of cases tried declines, plaintiff win rates at trial tend toward either 0 or 1. We present evidence that the relationship between T and P generated by the litigation process is consistent with DE and not AI. We also offer evidence of the presence of AI early in litigation in the form of one-sided plaintiff win rates in cases adjudicated prior to trial. We reconcile these two findings with evidence that pretrial adjudication and settlement culls both likely plaintiff winners and likely plaintiff losers from the filed pool, causing a tendency toward central rather than extreme plaintiff win rates at trial.

Suggested Citation

Waldfogel, Joel, Reconciling Asymmetric Information and Divergent Expectations Theories of Litigation (February 1998). NBER Working Paper No. w6409, Available at SSRN: https://ssrn.com/abstract=226157

Joel Waldfogel (Contact Author)

University of Minnesota - Twin Cities - Carlson School of Management ( email )

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Minneapolis, MN 55455
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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University of Minnesota - Twin Cities - Department of Economics ( email )

271 19th Avenue South
Minneapolis, MN 55455
United States

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