Deterrence, Lawsuits, and Litigation Outcomes Under Court Errors

Posted: 3 May 2006

See all articles by Claudia M. Landeo

Claudia M. Landeo

University of Alberta - Department of Economics

Maxim Nikitin

Higher School of Economics

Scott Baker

Washington University in St. Louis - School of Law

Multiple version iconThere are 3 versions of this paper

Abstract

This paper presents a strategic model of liability and litigation under court errors. Our framework allows for endogenous choice of level of care and endogenous likelihood of filing and disputes. We derive sufficient conditions for a unique universally-divine mixed-strategy perfect Bayesian equilibrium under low court errors. In this equilibrium, some defendants choose to be grossly negligent; some cases are filed; and, some lawsuits are dropped, some are resolved out-of-court and some go to trial. We find that court errors in the size of the award, as well as damage caps and split-awards, reduce the likelihood of trial but increase filing and reduce the deterrence effect of punitive damages. We derive conditions under which the adoption of the English rule for allocating legal costs reduces filing.

Keywords: Deterrence, Punitive Damage Awards, Bargaining, Asymmetric Information, Court Errors

JEL Classification: K41, C70, D82

Suggested Citation

Landeo, Claudia M. and Nikitin, Maxim and Baker, Scott A., Deterrence, Lawsuits, and Litigation Outcomes Under Court Errors. Journal of Law, Economics, & Organization, Vol. 23, No. 1, Spring 2007, Available at SSRN: https://ssrn.com/abstract=899693

Claudia M. Landeo (Contact Author)

University of Alberta - Department of Economics ( email )

Henry Marshall Tory Building 7-25
Edmonton, Alberta T6G 2H4
Canada

HOME PAGE: http://sites.google.com/a/ualberta.ca/claudia-m-landeo-s-home-page/home

Maxim Nikitin

Higher School of Economics ( email )

ICEF
Pokrovskiy bulvar 11
Moscow, 109028
Russia

Scott A. Baker

Washington University in St. Louis - School of Law ( email )

Campus Box 1120
St. Louis, MO 63130
United States

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