Litigation with Judgment Proof Defendants

27 Pages Posted: 28 Jan 2015

See all articles by Amy Farmer

Amy Farmer

University of Arkansas - Department of Economics

Paul Pecorino

University of Alabama - Department of Economics, Finance and Legal Studies

Date Written: January 27, 2015

Abstract

We consider a model of litigation in which some defendants have insufficient assets to pay a judgment at trial. Because the defendant’s assets are not observable, this serves as a source of asymmetric information which leads to trials in the equilibrium of the model. Unlike many other types of informational asymmetry, the defendant’s assets are not generally subject to discovery and it may be difficult to credibly establish a lack of assets in a voluntary disclosure. Thus, this is a source of asymmetry between the parties which is likely to persist in the presence of these institutions. This suggests that this particular asymmetry is a potentially important explanation for settlement failure, at least in a subset of cases. We describe three possible equilibria in the model with asset constrained defendants. One equilibrium is consistent with high dispute rates between the plaintiff and defendant. The model suggests that fee shifting will either have no effect on the incidence of trial or will increase it.

Keywords: Judgment Proof Defendant, Pretrial Bargaining, Asymmetric Information, fee shifting at trial

JEL Classification: K41, D82, C78

Suggested Citation

Farmer, Amy and Pecorino, Paul, Litigation with Judgment Proof Defendants (January 27, 2015). Available at SSRN: https://ssrn.com/abstract=2556300 or http://dx.doi.org/10.2139/ssrn.2556300

Amy Farmer

University of Arkansas - Department of Economics ( email )

Fayetteville, AR 72701
United States
501-575-6093 (Phone)
501-575-3241 (Fax)

Paul Pecorino (Contact Author)

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
Tuscaloosa, AL 35487
United States
205-348-0379 (Phone)
205-348-0590 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
49
Abstract Views
896
PlumX Metrics