Strategic Incentives in Non-Coasean Litigation

38 Pages Posted: 7 Apr 2021 Last revised: 28 Apr 2021

See all articles by Erik Hovenkamp

Erik Hovenkamp

USC Gould School of Law

Steven C. Salop

Georgetown University Law Center

Date Written: April 6, 2021

Abstract

We consider strategic behavior in non-Coasean litigation: private disputes such that the court's judgment may influence the final allocation of rights even if transaction costs are zero. This occurs when the law prohibits otherwise-profitable efforts to contract around the court's judgment. This constraint arises in myriad contexts, including antitrust, labor law, unfair competition, and various types of public interest litigation. We show that non-Coasean disputes systematically create incentives for problematic rent-seeking behaviors: strategic investments intended to influence the outcome of litigation, and collusive ex ante settlements that enrich the parties at the public's expense. These problems arise because the parties generally have asymmetric stakes, and asymmetric stakes affect strategic behavior differently when litigation is non-Coasean. Our analysis has important normative implications concerning private settlements, and establishes a underlying economic connection between problematic settlements spanning a wide range of legal contexts.

Keywords: litigation, settlement, rent seeking, law and economics, antitrust, externalities

JEL Classification: L40, K00, K21, K41

Suggested Citation

Hovenkamp, Erik and Salop, Steven C., Strategic Incentives in Non-Coasean Litigation (April 6, 2021). USC CLASS Research Paper Series No. CLASS21-20, USC Law Legal Studies Paper No. 21-20, Available at SSRN: https://ssrn.com/abstract=3821133 or http://dx.doi.org/10.2139/ssrn.3821133

Erik Hovenkamp (Contact Author)

USC Gould School of Law ( email )

Los Angeles, CA 90089
United States

Steven C. Salop

Georgetown University Law Center ( email )

600 New Jersey Avenue, NW
Washington, DC 20001
United States
202-662-9095 (Phone)
202-662-9497 (Fax)

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