Working Paper: NBER ID: w10943
Authors: Xinyu Hua; Kathryn E. Spier
Abstract: The information created and disseminated through the litigation process can have social value. Suppose a long-lived plaintiff is suing a defendant for damages sustained in an accident. The plaintiff may suffer similar damages in future accidents involving different defendants. Potential injurers update their beliefs after observing the first case and subsequently fine-tune their precautions to avoid accidents. The joint incentive of the plaintiff and the first defendant to create public information through litigation is too small. The optimal liability rule trades off providing future injurers with incentives to take precautions and providing the plaintiff with incentives to create information.
Keywords: No keywords provided
JEL Codes: K13; K41; D83
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| plaintiff's decision to litigate (K41) | information available to future defendants (K13) |
| information available to future defendants (K13) | precautionary behaviors of future defendants (K42) |
| insufficient information generation from the first case (D89) | future defendants' precautionary measures (K40) |
| accurate determination of damages (K13) | valuable information for future decision-making (D80) |
| divergence in private and social incentives (D71) | too few trials (C90) |
| litigation costs exceed a certain threshold (K41) | settlement choice by plaintiff and first defendant (K41) |
| asymmetric information about damages (D82) | bargaining failures (C78) |