Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/93938
Authors: 
Zhou, Jun
Year of Publication: 
2010
Series/Report no.: 
SFB/TR 15 Discussion Paper 346
Abstract: 
Litigation seems to be a Pareto-ineffcient outcome of pretrial bargaining; however, this paper shows that litigation can be the outcome of rational behavior by a litigant and her attorney. If the attorney has more information than his client concerning the characteristics of the lawsuit, the client can use litigation as a way of extracting information. I show that, counterintuitively, litigation will occur only when the plaintiff is pessimistic about her prospects at trial. Even if the plaintiff could obtain a higher payoff from bargaining than from litigation-without-bargaining, bargaining may not occur in equilibrium. The plaintiff is more likely to sue if she is more pessimistic about winning damage in court and if litigation is more risky. Litigation is less likely to occur if the plaintiff receives third party financing for litigation.
Subjects: 
settlement-litigation decision
costs of bargaining
non-bargaining
delegation of dispute resolution
risks of litigation
plaintiff-characteristic dependence
low plaintiff win rates
JEL: 
C78
D74
D86
K41
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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