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Plaintiffs exploiting Plaintiffs

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Author Info
Alexander Stremitzer ()

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Abstract

We consider a model of a single defendant and N plaintiffs where the total cost of litigation is fixed on the part of the plaintiffs and shared among the members of a suing coalition. By settling and dropping out of the coalition, a plaintiff therefore creates a negative externality on the other plaintiffs. It was shown in Che and Spier (2007) that failure to internalize this externality can often be exploited by the defendant. However, if plaintiffs make sequential take-it-or-leave-it settlement offers, we can show that they will actually be exploited by one of their fellow plaintiffs rather than by the defendant. Moreover, if litigation is a public good as is the case in shareholder derivative suits, parties may fail to reach a settlement even having complete information. This may explain why we observe derivative suits in the US but not in Europe.

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File URL: ftp://web.bgse.uni-bonn.de/pub/RePEc/bon/bonedp/bgse2_2008.pdf
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Publisher Info
Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse2_2008.

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Length: 13
Date of creation: 12 Jan 2008
Date of revision:
Handle: RePEc:bon:bonedp:bgse2_2008

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Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
Fax: +49 228 73 9221
Web page: http://www.bgse.uni-bonn.de/index.php?id=494

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Related research
Keywords: litigation; settlement; bargaining; contracting with externalities; derivative suits; public goods;

Other versions of this item:

Find related papers by JEL classification:
K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
H4 - Public Economics - - Publicly Provided Goods

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Barry Nalebuff, 1987. "Credible Pretrial Negotiation," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 198-210, Summer. [Downloadable!] (restricted)
  2. Romano, Roberta, 1991. "The Shareholder Suit: Litigation without Foundation?," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(1), pages 55-87, Spring.
  3. Spier, Kathryn E, 1992. "The Dynamics of Pretrial Negotiation," Review of Economic Studies, Blackwell Publishing, vol. 59(1), pages 93-108, January. [Downloadable!] (restricted)
  4. Kristoffel Grechenig & Michael Sekyra, . "No Derivative Shareholder Suits in Europe - A Model of Percentage Limits, Collusion, and Residual Owners," German Working Papers in Law and Economics 2007-2-1166, Berkeley Electronic Press. [Downloadable!]
  5. Kristoffel Grechenig & Michael Sekyra, 2007. "No Derivative Shareholder Suits in Europe - A Model of Percentage Limits, Collusion and Residual Owners," University of St. Gallen Department of Economics working paper series 2007 2007-21, Department of Economics, University of St. Gallen. [Downloadable!]
  6. Oren Bar-Gill, 2006. "The Evolution and Persistence of Optimism in Litigation," Journal of Law, Economics and Organization, Oxford University Press, vol. 22(2), pages 490-507, October. [Downloadable!] (restricted)
  7. Segal, Ilya, 2003. "Coordination and discrimination in contracting with externalities: divide and conquer?," Journal of Economic Theory, Elsevier, vol. 113(2), pages 147-181, December. [Downloadable!] (restricted)
  8. Jennifer F. Reinganum & Louise L. Wilde, 1986. "Settlement, Litigation, and the Allocation of Litigation Costs," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 557-566, Winter. [Downloadable!] (restricted)
  9. Yeon-Koo Che & Kathryn E. Spier, 2007. "Exploiting Plaintiffs Through Settlement: Divide and Conquer," Discussion Papers 0607-18, Columbia University, Department of Economics. [Downloadable!]
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  10. Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn. [Downloadable!] (restricted)
  11. Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, 04. [Downloadable!] (restricted)
    Other versions:
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