IDEAS home Printed from https://ideas.repec.org/p/trf/wpaper/224.html
   My bibliography  Save this paper

Plaintiffs exploiting Plaintiffs

Author

Listed:
  • Stremitzer, Alexander

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.

Suggested Citation

  • Stremitzer, Alexander, 2008. "Plaintiffs exploiting Plaintiffs," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 224, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    • Handle: RePEc:trf:wpaper:224
    as

    Download full text from publisher

    File URL: https://epub.ub.uni-muenchen.de/13328/1/224.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. 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.
    2. 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, April.
    3. Oren Bar-Gill, 2006. "The Evolution and Persistence of Optimism in Litigation," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 22(2), pages 490-507, October.
    4. 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.
    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.
    6. Kathryn E. Spier, 1992. "The Dynamics of Pretrial Negotiation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 59(1), pages 93-108.
    7. Barry Nalebuff, 1987. "Credible Pretrial Negotiation," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 198-210, Summer.
    8. Yeon-Koo Che & Kathryn E. Spier, 2008. "Exploiting Plaintiffs through Settlement: Divide and Conquer," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(1), pages 4-23, March.
    9. Romano, Roberta, 1991. "The Shareholder Suit: Litigation without Foundation?," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(1), pages 55-87, Spring.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Grechenig, Kristoffel & Sekyra, Michael, 2011. "No derivative shareholder suits in Europe: A model of percentage limits and collusion," International Review of Law and Economics, Elsevier, vol. 31(1), pages 16-20, March.
    2. Ehud Guttel & Shmuel Leshem, 2011. "Buying the Right to Harm: The Economics of Buyouts," CAE Working Papers 93, Aix-Marseille Université, CERGAM.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dari-Mattiacci, Giuseppe & Deffains, Bruno & Lovat, Bruno, 2011. "The dynamics of the legal system," Journal of Economic Behavior & Organization, Elsevier, vol. 79(1), pages 95-107.
    2. He, Leshui, 2020. "A theory of pre-filing settlement and patent assertion entities," International Journal of Industrial Organization, Elsevier, vol. 70(C).
    3. J.J. Prescott & Kathryn E. Spier & Albert Yoon, 2014. "Trial and Settlement: A Study of High-Low Agreements," NBER Working Papers 19873, National Bureau of Economic Research, Inc.
    4. J.J. Prescott & Kathryn E. Spier & Albert Yoon, 2014. "Trial and Settlement: A Study of High-Low Agreements," Journal of Law and Economics, University of Chicago Press, vol. 57(3), pages 699-746.
    5. Giuseppe Dari-Mattiacci & Bruno Deffains, 2007. "Uncertainty of Law and the Legal Process," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 163(4), pages 627-656, December.
    6. Heyes, Anthony & Rickman, Neil & Tzavara, Dionisia, 2004. "Legal expenses insurance, risk aversion and litigation," International Review of Law and Economics, Elsevier, vol. 24(1), pages 107-119, March.
    7. Choné, Philippe & Linnemer, Laurent, 2010. "Optimal litigation strategies with observable case preparation," Games and Economic Behavior, Elsevier, vol. 70(2), pages 271-288, November.
    8. Argenton, Cedric & Wang, Xiaoyu, 2020. "Litigation and Settlement under Loss Aversion," Other publications TiSEM b6c48abc-9b47-4c3b-848b-3, Tilburg University, School of Economics and Management.
    9. Andrew F. Daughety & Jennifer F. Reinganum, 1995. "Keeping Society in the Dark: On the Admissibility of Pretrial Negotiations as Evidence in Court," RAND Journal of Economics, The RAND Corporation, vol. 26(2), pages 203-221, Summer.
    10. Amy Farmer & Paul Pecorino, 2005. "Civil Litigation with Mandatory Discovery and Voluntary Transmission of Private Information," The Journal of Legal Studies, University of Chicago Press, vol. 34(1), pages 137-159, January.
    11. Lee, Yoon-Ho Alex & Klerman, Daniel, 2016. "The Priest-Klein hypotheses: Proofs and generality," International Review of Law and Economics, Elsevier, vol. 48(C), pages 59-76.
    12. Roland Kirstein & Neil Rickman, 2004. ""Third Party Contingency" Contracts in Settlement and Litigation," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 160(4), pages 555-575, December.
    13. Luca Anderlini & Leonardo Felli & Giovanni Immordino, 2019. "Costly Pretrial Agreements," The Journal of Legal Studies, University of Chicago Press, vol. 48(1), pages 159-188.
    14. Farmer, Amy & Pecorino, Paul, 2002. "Pretrial bargaining with self-serving bias and asymmetric information," Journal of Economic Behavior & Organization, Elsevier, vol. 48(2), pages 163-176, June.
    15. Andrew F. Daughety & Reinganum F. Reinganum, 2014. "Settlement and Trial: Selected Analyses of the Bargaining Environment," Vanderbilt University Department of Economics Working Papers 14-00005, Vanderbilt University Department of Economics.
    16. Cédric Argenton & Xiaoyu Wang, 2023. "Litigation and settlement under loss aversion," European Journal of Law and Economics, Springer, vol. 56(2), pages 369-402, October.
    17. Yasutora Watanabe, 2005. "Learning and Bargaining in Dispute Resolution: Theory and Evidence from Medical Malpractice Litigation," 2005 Meeting Papers 440, Society for Economic Dynamics.
    18. Koçkesen, Levent & Usman, Murat, 2012. "Litigation and settlement under judicial agency," International Review of Law and Economics, Elsevier, vol. 32(3), pages 300-308.
    19. Bar, Talia & Kalinowski, Jesse, 2019. "Patent validity and the timing of settlements," International Journal of Industrial Organization, Elsevier, vol. 67(C).
    20. Osborne, Evan, 1999. "Who should be worried about asymmetric information in litigation?," International Review of Law and Economics, Elsevier, vol. 19(3), pages 399-409, September.

    More about this item

    Keywords

    litigation; settlement; bargaining; contracting with externalities; derivative suits; public goods;
    All these keywords.

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:trf:wpaper:224. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tamilla Benkelberg (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.