Optimal Litigation Strategies with Signaling and Screening

Philippe Choné and Laurent Linnemer

No 2334, CESifo Working Paper Series from CESifo

Abstract: This paper examines 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, or not, 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.

Keywords: case preparation; settlement; trial; signaling (search for similar items in EconPapers)
JEL-codes: K41 (search for similar items in EconPapers)
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Optimal Litigation Strategies with Signaling and Screening (2010)
Working Paper: Optimal Litigation Strategies with Signaling and Screening (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_2334

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