Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/76772
Authors: 
Ackermann, Philipp
Year of Publication: 
2010
Series/Report no.: 
Discussion Papers, Department of Economics, Universität Bern 10-03
Abstract: 
Settlements are often considered to be welfare-enhancing because they save time and litigation costs. In the presence of court error, however, this conclusion may be wrong. Court decisions create positive externalities for future litigants which will not occur if a dispute is settled out of court. Focusing on private litigation, we examine the impact of court error on the deterrent effect of the strict liability rule. In an asymmetric information setup both, underdeterrence and overdeterrence are possible under court error. Moreover, court error increases the likelihood of out-of-court settlements which can offset the positive externality of litigation.
Subjects: 
litigation
settlement
asymmetric information
court error
strict liability rule
JEL: 
K13
K41
Document Type: 
Working Paper

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