New Empirical Tests for Classic Litigation Selection Models
American Law and Economics Review, forthcoming 2021
54 Pages Posted: 22 Feb 2018 Last revised: 30 Aug 2021
Date Written: January 25, 2018
Law and economics theorists have long advanced theories of litigation and settlement, including the canonical Priest and Klein (1984) model that predicts that, as settlement rates rise, plaintiff win rates approach 50%. Empiricists have tested this and other predictions from the theoretical literature, finding qualified support for the Priest and Klein model. So far, though, this literature has relied primarily on data from the U.S. Yet, because this model rests on simple assumptions about human behavior in the context of a legal dispute, not on any distinctive features of American litigation, its basic insights should apply everywhere. In this paper, we put the universality of the Priest and Klein model to the test, using a unique administrative data set from Taiwan, comprising about a half-million observations. We find strongly suggestive evidence in favor of the Priest and Klein model. We consider variants of the model incorporating risk aversion and compare results testing potential implications of models of settlement under asymmetric information.
Keywords: Priest-Klein model, 50 percent hypothesis, divergent expectations, asymmetric information, risk aversion, trial rate, settlement rate, plaintiff win rate, attorney representation
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