Post-Judgment Bargaining with a Conversation with the Honorable Professor Guido Calabresi
49 Pages Posted: 5 May 2016
Date Written: 2015
The article deals with the feasibility of bargaining between parties after the court ruled on the allocation of rights. Coase, Calabresi and Melamed, and others had argued that when it is efficient to bargain about selling and buying a right after the court ruled on its allocation, bargaining continues until the right is or is not bought; as long as efficiency is the name of the game, bargaining is usually undertaken. In an empirical study, Ward Farnsworth challenged these classic economic theories. He found that in a situation of animosity (he studied neighbors who were parties to a dispute about nuisance) the parties were unlikely to bargain after judgment, regardless of how the court allocated the rights at issue between them. In his opinion, the animosity between the parties, and their disinclination to treat their dispute as a matter of money, played a decisive role that outweighed the considerations typical to economic models. Thus, Farnsworth claimed that in this context, practice is incompatible with economic theory.
The present article argues that the classic economic approaches were too inclusive and did not distinguish cases in which post-judgment bargaining (“PJB”) is expected from those in which there is no such expectation. Farnsworth’s critique, however, seems also too inclusive, because in some cases, despite the presence of outright hostility, PJB occur. But Farnsworth only said that in the situation he studied, the hostility between the parties, and their reluctance to treat the rights at issue as subject for bargaining, was too great to overcome. He did not aim to present clear parameters either. However, a more valuable tactic would be to characterize the various types of cases and determine when PJB can and cannot be expected.
This article presents what appears to be a counter-example to Farnsworth, that is, a case in which despite the great animosity between the parties — spouses in a divorce conflict — bargaining is conducted after the ruling that allocates the rights, in an attempt to reach a deal. Thus, at times, practice appears to be consistent with economic theory. This test case may serve not only as a bridge between the classic economic approach and Farnsworth’s behavioral one, but may also explain when bargaining is to be expected between the parties in order to buy the right after its allocation by the court, and when it is not. The article suggests parameters by which to estimate when PJB is to be expected, with the understanding that both the classic economic approach and Farnsworth’s are relevant in certain circumstances, but that it is necessary to qualify both and determine for which types of cases each one is better suited. This suggestion is of interest to law and economics as well as to behavioral law and economics. Thus, it seems that this approach complements both the classic economic theories and Farnsworth’s findings. There is also a practical importance for the suggested explanation. All concerned — the parties themselves, the lawyers, and even the judges — can know in advance how to deal with cases in which it makes sense to encourage bargaining after the judgment, as opposed to those in which there is little chance for such bargaining.
The Article ends with a conversation with the Hon. Prof. Guido Calabresi, who discusses the possible implications of the Calabresi/Melamed framework that Farnsworth criticizes. Calabresi talks about PJB in cases of nuisance and get refusal, explaining why we can understand and accept both what Farnsworth and the present article concluded.
Keywords: Post-Judgment Bargaining, Tort Law, Property Law, Law and Economics, Efficiency, Calabresi and Melamed, Four Rules, Coase Theorem, Property Rules, Liability Rules, Transaction Costs, Nuisance, Bargaining in the Shadow of the Law, Negotiations, Conflict of Laws, Family Law
JEL Classification: K10
Suggested Citation: Suggested Citation