Costly Pretrial Agreements

Luca Anderlini, Leonardo Felli and Giovanni Immordino

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: Legal disputes are either settled or end up in Court. Settling a dispute involves some costs (time and money invested in preparations) that the parties have to incur ex-ante, in order 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. As parameters vary, the equilibrium of our full information model with costly pretrial agreements sheds light on two key features of how disputes are initiated and subsequently handled. First, in some cases 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 ends up in Court is unaffected by the way trial costs are distributed among the litigants (e.g. English Rule or American Rule). 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 a given suit is settled before trial or litigated in Court.

Keywords: Pretrial Agreements; Costly Negotiations; Court Litigation (search for similar items in EconPapers)
JEL-codes: C79 D23 D86 K12 K13 (search for similar items in EconPapers)
Date: 2016-07-13
New Economics Papers: this item is included in nep-gth, nep-law and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published in Journal of Legal Studies, 2019, 48:1, 159-188

Downloads: (external link)
http://www.csef.it/WP/wp449.pdf (application/pdf)

Related works:
Journal Article: Costly Pretrial Agreements (2019)
Working Paper: Costly pretrial agreements (2019)
Working Paper: Costly Pretrial Agreements (2018)
Working Paper: Costly Pre-Trial Agreements (2018)
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