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Judicial Detection Skill, Litigational Opportunism, and Contractual Compliance

Dieter Schmidtchen and Roland Kirstein

No 96-04, CSLE Discussion Paper Series from Saarland University, CSLE - Center for the Study of Law and Economics

Abstract: Mutually beneficial agreements might fail if the parties fear contractual opportunism. Litigation is supposed to prevent this, but still leaves room for litigational opportunism: Even knowing that the opponent has fulfilled his obligations, a party might bring suit. We show that with positive judicial detection skill, litigation fees can be designed to deter opportunistic suits and simultaneously induce bilateral contractual compliance. With zero detection skill, as implicitly assumed by most of the economic literature on litigation, bilateral contractual compliance cannot be induced. We apply our results to evaluate the American and the British cost allocation rules.

Keywords: procedural law; frivolous suits; positive detection skill; verifiability; litigation costs; American rule; British rule (search for similar items in EconPapers)
JEL-codes: K12 K41 C72 (search for similar items in EconPapers)
Date: 1996
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