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Exploiting Plaintiffs Through Settlement: Divide and Conquer

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Author Info
Che, Yeon-Koo
Spier, Kathryn

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Abstract

This paper considers settlement negotiations between a single defendant and $N$ plaintiffs when there are fixed costs of litigation. When making simultaneous take-it-or-leave-it offers to the plaintiffs, the defendant adopts a divide and conquer strategy. Plaintiffs settle their claims for less than they are jointly worth. The problem is worse when $N$ is larger, the offers are sequential, and the plaintiffs make offers instead. Although divide and conquer strategies dilute the defendant's incentives, they increase the settlement rate and reduce litigation spending. Plaintiffs can raise their joint payoff through transfer payments, voting rules, and covenants not to accept discriminatory offers.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6104.

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Date of creation: 2007
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Handle: RePEc:pra:mprapa:6104

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K0 - Law and Economics - - General
D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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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.:
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    Other versions:
  5. Kornhauser, Lewis A & Revesz, Richard L, 1994. "Multidefendant Settlements under Joint and Several Liability: The Problem of Insolvency," Journal of Legal Studies, University of Chicago Press, vol. 23(1), pages 517-42, January.
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    Other versions:
  31. Kornhauser, Lewis A & Revesz, Richard L, 1994. "Multidefendant Settlements: The Impact of Joint and Several Liability," Journal of Legal Studies, University of Chicago Press, vol. 23(1), pages 41-76, January.
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Cited by:
(explanations, 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. Alexander Stremitzer, 2008. "Plaintiffs exploiting Plaintiffs," Discussion Papers 224, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
    Other versions:
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