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Why go to court? Bargaining failure under the shadow of trial with complete information

Michael McBride (), Stergios Skaperdas and Pi-Han Tsai

European Journal of Political Economy, 2018, vol. 55, issue C, 151-168

Abstract: Why do legal disputes ever go to trial? Prior research emphasizes the role of mistakes, irrationalities, or asymmetric information because rational litigants with complete or symmetric information should choose pre-trial settlements over the costs and risks of trial. Using a dynamic incomplete-contracting framework, we provide an overlooked rationale for going to court. Even though risky and costly, going to court can be both rational and socially efficient when a court decision enhances property rights and deters future costly litigation. Experimental evidence supports these predictions. Our findings provide new insights into the incidence of litigation and trial.

Keywords: Litigation; Court; Conflict; Contests (search for similar items in EconPapers)
JEL-codes: C72 K11 K41 (search for similar items in EconPapers)
Date: 2018
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Working Paper: Why Go to Court? Bargaining Failure under the Shadow of Trial with Complete Information (2014) Downloads
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Handle: RePEc:eee:poleco:v:55:y:2018:i:c:p:151-168