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Litigation and Pretrial Negotiation under Incomplete Information

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  • Wang, Gyu Ho
  • Kim, Jeong-Yoo
  • Yi, Jong-Goo

Abstract

We formulate a pretrial negotiation problem as an infinite-horizon bargaining model with one-sided uncertainty and alternating offers, with the informed party having an outside option. The plaintiff has private information and also has an outside option of "going to court." The defendant moves first. We show that there exists a unique sequential equilibrium. In equilibrium, when the defendant makes an offer, all the plaintiffs whose net recovery from litigation is greater (smaller) than the offer, reject it (accept it) and go to court next period. Hence, along the equilibrium path, the game lasts at most two periods. Copyright 1994 by Oxford University Press.

Suggested Citation

  • Wang, Gyu Ho & Kim, Jeong-Yoo & Yi, Jong-Goo, 1994. "Litigation and Pretrial Negotiation under Incomplete Information," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 10(1), pages 187-200, April.
    • Handle: RePEc:oup:jleorg:v:10:y:1994:i:1:p:187-200
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    Cited by:

    1. Anne Duchêne, 2017. "Patent Litigation Insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 84(2), pages 631-660, June.
    2. Chopard, Bertrand & Cortade, Thomas & Langlais, Eric, 2010. "Trial and settlement negotiations between asymmetrically skilled parties," International Review of Law and Economics, Elsevier, vol. 30(1), pages 18-27, March.
    3. Axel Gautier & Nicolas Petit, 2018. "Optimal enforcement of competition policy: the commitments procedure under uncertainty," European Journal of Law and Economics, Springer, vol. 45(2), pages 195-224, April.
    4. Chopard, Bertrand & Cortade, Thomas & Cosnita-Langlais, Andreea, 2015. "Success and failure of bargaining in merger control: The case of asset divestitures," Economic Modelling, Elsevier, vol. 49(C), pages 254-259.
    5. Yeon-Koo Che, 2002. "The Economics of Collective Negotiation in Pretrial Bargaining," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 549-576, May.
    6. Miceli, Thomas J., 1999. "Settlement delay as a sorting device," International Review of Law and Economics, Elsevier, vol. 19(2), pages 265-274, June.
    7. LaCasse, Chantale & Payne, A Abigail, 1999. "Federal Sentencing Guidelines and Mandatory Minimum Sentences: Do Defendants Bargain in the Shadow of the Judge?," Journal of Law and Economics, University of Chicago Press, vol. 42(1), pages 245-269, April.
    8. Dandekar Suyog Ravindra & Raja Angara V., 2015. "Economic Analysis of Pre-trial Negotiations: A Behavioral Approach," Asian Journal of Law and Economics, De Gruyter, vol. 6(1), pages 1-21, April.
    9. Christopher C. Klein, 2007. "Anticompetitive Litigation and Antitrust Liability," Working Papers 200713, Middle Tennessee State University, Department of Economics and Finance.
    10. Sean P. Sullivan, 2016. "Why Wait to Settle? An Experimental Test of the Asymmetric-Information Hypothesis," Journal of Law and Economics, University of Chicago Press, vol. 59(3), pages 497-525.
    11. Alfredo Esposto, 1998. "Takings, litigation, and just compensation," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 26(4), pages 397-412, December.
    12. Ormosi, Peter L., 2012. "Tactical dilatory practice in litigation: Evidence from EC merger proceedings," International Review of Law and Economics, Elsevier, vol. 32(4), pages 370-377.
    13. Schwab, Christian & Tang, Hin-Yue Benny, 2011. "Die Steuerungswirkungen unterschiedlicher Prozesskostenregelungen: Ein Überblick zum Stand von Theorie und Empirie [The economic effects of alternative fee shifting rules: A review of the theoretic," MPRA Paper 32746, University Library of Munich, Germany.
    14. Kim Helena Hye-Young, 2011. "The Analysis of Changes in the Contract Zone on Pre-Trial Bargaining Outcome under Incomplete Information," Asian Journal of Law and Economics, De Gruyter, vol. 2(2), pages 1-13, July.
    15. Guha, Brishti, 2019. "Malice in pretrial negotiations," International Review of Law and Economics, Elsevier, vol. 58(C), pages 25-33.
    16. Kima, Jeong-Yoo & Ryu, Keunkwan, 2000. "Pretrial negotiation behind open doors versus closed doors:: Economic analysis of Rule 408," International Review of Law and Economics, Elsevier, vol. 20(2), pages 285-294, June.

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