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Title:Optimal litigation strategies with signaling and screening PDF Logo
Authors:Choné, Philippe
Linnemer, Laurent
Issue Date:2008
Series/Report no.:CESifo working paper 2334
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.
Subjects:Case preparation
settlement
trial
signaling
JEL:K41
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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