Why Go to Court? Bargaining Failure under the Shadow of Trial with Complete Information

Michael McBride (), Stergios Skaperdas and Pi-Han Tsai ()
Additional contact information
Pi-Han Tsai: Department of Economics, University of California-Irvine

No 131406, Working Papers from University of California-Irvine, Department of Economics

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)
Pages: 44 pages
Date: 2014-05
New Economics Papers: this item is included in nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Journal Article: Why go to court? Bargaining failure under the shadow of trial with complete information (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:irv:wpaper:131406

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