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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 117-136, 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. Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn.
    2. A. Mitchell Polinsky & Steven Shavell (ed.), 2007. "Handbook of Law and Economics," Handbook of Law and Economics, Elsevier, edition 1, volume 2, number 2.
    3. Farmer, Amy & Pecorino, Paul, 1998. "A reputation for being a nuisance: frivolous lawsuits and fee shifting in a repeated play game," International Review of Law and Economics, Elsevier, vol. 18(2), pages 147-157, June.
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    6. Klement, Alon, 2003. "Threats to sue and cost divisibility under asymmetric information," International Review of Law and Economics, Elsevier, vol. 23(3), pages 261-272, September.
    7. Amy Farmer & Paul Pecorino, 2007. "Negative Expected Value Suits in a Signaling Model," Southern Economic Journal, John Wiley & Sons, vol. 74(2), pages 434-447, October.
    8. Rosenberg, D. & Shavell, S., 1985. "A model in which suits are brought for their nuisance value," International Review of Law and Economics, Elsevier, vol. 5(1), pages 3-13, June.
    9. A. Mitchell Polinsky & Steven Shavell (ed.), 2007. "Handbook of Law and Economics," Handbook of Law and Economics, Elsevier, edition 1, volume 1, number 1.
    10. Katz, Avery, 1990. "The effect of frivolous lawsuits on the settlement of litigation," International Review of Law and Economics, Elsevier, vol. 10(1), pages 3-27, May.
    11. Bebchuk, Lucian Arye, 1988. "Suing Solely to Extract a Settlement Offer," The Journal of Legal Studies, University of Chicago Press, vol. 17(2), pages 437-450, June.
    12. Rosenberg, David & Shavell, Steven, 2006. "A solution to the problem of nuisance suits: The option to have the court bar settlement," International Review of Law and Economics, Elsevier, vol. 26(1), pages 42-51, March.
    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.
    14. Warren F. Schwartz & Abraham L. Wickelgren, 2009. "Advantage Defendant: Why Sinking Litigation Costs Makes Negative-Expected-Value Defenses but Not Negative-Expected-Value Suits Credible," The Journal of Legal Studies, University of Chicago Press, vol. 38(1), pages 235-253, 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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