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Litigation with Default Judgments

Author

Listed:
  • Farmer Amy

    (Department of Economics, University of Arkansas, Fayetteville, AR 72701, USA)

  • Pecorino Paul

    (Department of Economics, Finance and Legal Studies, University of Alabama, Tuscaloosa, AL 35487-0224, USA)

Abstract

In a model of pretrial bargaining under asymmetric information, we analyze the defendant’s threat to proceed to trial in the face of a rejected offer. The incidence of trial is lower when the defendant’s constraint is binding compared with the unconstrained case. The signs of some of the comparative statics of the model are a function of whether or not the defendant’s credibility constraint is binding. In particular, fee shifting has no effect on the incidence of trial when the credibility constraint is not binding, but has an ambiguous effect when the constraint is binding. In this latter case, the use of fee shifting will lower the incidence of trial if and only if the plaintiff expects to shift fees on net to the defendant.

Suggested Citation

  • Farmer Amy & Pecorino Paul, 2014. "Litigation with Default Judgments," Review of Law & Economics, De Gruyter, vol. 10(2), pages 1-20, July.
    • Handle: RePEc:bpj:rlecon:v:10:y:2014:i:2:p:20:n:3
    DOI: 10.1515/rle-2013-0047
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    References listed on IDEAS

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    1. A. Mitchell Polinsky & Steven Shavell (ed.), 2007. "Handbook of Law and Economics," Handbook of Law and Economics, Elsevier, edition 1, volume 2, number 2.
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    8. Barry Nalebuff, 1987. "Credible Pretrial Negotiation," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 198-210, Summer.
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    13. Bebchuk, Lucian Arye, 1996. "A New Theory Concerning the Credibility and Success of Threats to Sue," The Journal of Legal Studies, University of Chicago Press, vol. 25(1), pages 1-25, January.
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    Cited by:

    1. Berlemann, Michael & Christmann, Robin, 2019. "Determinants of in-court settlements: empirical evidence from a German trial court," Journal of Institutional Economics, Cambridge University Press, vol. 15(1), pages 143-162, February.

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