Working Paper: CEPR ID: DP13074
Authors: Leonardo Felli; Luca Anderlini; Giovanni Immordino
Abstract: Settling a legal dispute involves some costs that the parties have to incur ex-ante, for the pretrial negotiation and possible agreement to become feasible. Even in a full information world, if the distribution of these costs is sufficiently mismatched with the distribution of the parties’ bargaining powers, a pretrial agreement may never be reached even though actual Court litigation is overall wasteful.Our results shed light on two key issues. First, a Plaintiff may initiate a law suit even though the parties fully anticipate that it will be settled out of Court. Second, the “likelihood” that a given law suit goes to trial is unaffected by how trial costs are distributed among the litigants. The choice of fee-shifting rule can only affect whether the Plaintiff files a law suit in the first place. It does not affect whether it is settled before trial or litigated in Court.
Keywords: Pretrial Agreements; Costly Negotiations; Court Litigation
JEL Codes: D23; D86; C79; K12; K13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| P's choice to file (K35) | negotiation dynamics (C78) |
| fee-shifting rules (H22) | P's choice to file (K35) |
| fee-shifting rules (H22) | likelihood of trial (K41) |
| bargaining power distributions (C78) | settlement outcomes (K41) |