Litigation with Default Judgments

Farmer Amy () and Paul Pecorino ()
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Farmer Amy: Department of Economics, University of Arkansas, Fayetteville, AR 72701, USA

Review of Law & Economics, 2014, vol. 10, issue 2, 117-136

Abstract: In a model of pretrial bargaining under asymmetric information, we analyze the defendant’s threat to proceed to trial in the face of a rejected offer. The incidence of trial is lower when the defendant’s constraint is binding compared with the unconstrained case. The signs of some of the comparative statics of the model are a function of whether or not the defendant’s credibility constraint is binding. In particular, fee shifting has no effect on the incidence of trial when the credibility constraint is not binding, but has an ambiguous effect when the constraint is binding. In this latter case, the use of fee shifting will lower the incidence of trial if and only if the plaintiff expects to shift fees on net to the defendant.

Keywords: litigation; asymmetric information; default judgment (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1515/rle-2013-0047

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