Costly Pretrial Agreements

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...

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Bibliographic Details
Published in:The Journal of legal studies 2019-01, Vol.48 (1), p.159-188
Main Authors: Anderlini, Luca, Felli, Leonardo, Immordino, Giovanni
Format: Article
Language:English
Subjects:
Agreements
Alternative dispute resolution
Courts
Litigation
Negotiations
Pretrial
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Summary: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.
ISSN:0047-2530
1537-5366
DOI:10.1086/699841