Optimal Litigation Strategies with Signaling and Screening

Philippe Choné and Laurent Linnemer

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Abstract: This paper investigates the strategic effects of case preparation in litigation. Specifically, it shows how the pretrial efforts incurred by one party may alter its adversary's incentives to settle. We build a sequential game with one-sided asymmetric information where the informed party first decides to invest in case preparation, and the uninformed party then makes a settlement offer. Overinvestment, or bluff, always prevails in equilibrium: with positive probability, plaintiffs with weak cases take a chance on investing, and regret it in case of trial. Furthermore, due to the endogenous investment decision, the probability of trial may (locally) decrease with case strength. Overinvestment generates inefficient preparation costs, but may trigger more settlements, thereby reducing trial costs.

Date: 2010-11
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Published in Games and Economic Behavior, 2010, 70 (2), pp.271-288. ⟨10.1016/j.geb.2010.03.001⟩

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Related works:
Working Paper: Optimal Litigation Strategies with Signaling and Screening (2008)
Working Paper: Optimal Litigation Strategies with Signaling and Screening (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00558169

DOI: 10.1016/j.geb.2010.03.001

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