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Costly pretrial agreements

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Peer-reviewed

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Article

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Authors

Anderlini, L 
Immordino, G 

Abstract

© 2019 by The University of Chicago. All rights reserved. Settling a legal dispute involves some costs that the parties have to incur ex ante for the pretrial negotiation and possible agreement to become feasible. Even in a full-information world, if the distribution of these costs is sufficiently mismatched with the distribution of the parties’ bargaining powers, a pretrial agreement may never be reached even though litigation is overall wasteful. Our results shed light on two key issues. First, a plaintiff may initiate a lawsuit even though the parties fully anticipate that it will be settled out of court. Second, the likelihood that a given lawsuit goes to trial is unaffected by how trial costs are distributed among the litigants. The choice of fee-shifting rule can affect only whether the plaintiff files a lawsuit in the first place. It does not affect whether it is settled before trial or litigated.

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Keywords

38 Economics, 48 Law and Legal Studies, 4804 Law In Context, 3801 Applied Economics

Journal Title

Journal of Legal Studies

Conference Name

Journal ISSN

0047-2530
1537-5366

Volume Title

48

Publisher

University of Chicago Press

Rights

All rights reserved