Litigation and Selection with Correlated Two-Sided Incomplete Information

63 Pages Posted: 8 Mar 2017 Last revised: 1 Sep 2019

See all articles by Daniel M. Klerman

Daniel M. Klerman

University of Southern California Gould School of Law

Yoon-Ho Alex Lee

Northwestern Pritzker School of Law

Lawrence Liu

University of Southern California - Department of Physics and Astronomy

Date Written: October 27, 2017

Abstract

This article explores the selection of disputes for litigation in a setting with two-sided incomplete information and correlated signals. The models analyzed here suggest that Priest and Klein’s conclusion that close cases are more likely to go to trial than extreme cases remains largely valid when their model is interpreted as involving correlated, two-sided incomplete information and is updated (i) to incorporate take-it-or-leave-it offers or the Chatterjee-Samuelson mechanism, (ii) to take into account the credibility of the plaintiff’s threat to go to trial, and (iii) to allow parties to make sophisticated, Bayesian inferences based on knowledge of the distribution of disputes. On the other hand, Priest and Klein’s prediction that the plaintiff will win fifty percent of litigated cases is sensitive to bargaining and parameter assumptions.

Keywords: Law and Economics; Litigation; Settlement; Selection; Bargaining; Incomplete Information; Asymmetric Information; Priest-Klein; Divergent Expectations; Chatterjee-Samuelson; signaling; screening

JEL Classification: K, K41

Suggested Citation

Klerman, Daniel M. and Lee, Yoon-Ho Alex and Liu, Lawrence, Litigation and Selection with Correlated Two-Sided Incomplete Information (October 27, 2017). Available at SSRN: https://ssrn.com/abstract=2927248 or http://dx.doi.org/10.2139/ssrn.2927248

Daniel M. Klerman (Contact Author)

University of Southern California Gould School of Law ( email )

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Yoon-Ho Alex Lee

Northwestern Pritzker School of Law ( email )

375 E. Chicago Ave
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(312) 503-2565 (Phone)

Lawrence Liu

University of Southern California - Department of Physics and Astronomy ( email )

825 Bloom Walk
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Los Angeles, CA 90089-0484
United States

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