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Exploiting plaintiffs through settlement: Divide and conquer

Yeon-Koo Che; Kathryn E. Spier

Title:
Exploiting plaintiffs through settlement: Divide and conquer
Author(s):
Che, Yeon-Koo
Spier, Kathryn E.
Date:
Type:
Working papers
Department:
Economics
Permanent URL:
Series:
Department of Economics Discussion Papers
Part Number:
0607-18
Abstract:
This paper considers settlement negotiations between a single defendant and N plaintiffs when there are fixed costs of litigation. When making simultaneous take-it-or-leave-it offers to the plaintiffs, the defendant adopts a divide and conquer strategy. Plaintiffs settle their claims for less than they are jointly worth. The problem is worse when N is larger, the offers are sequential, and the plaintiffs make offers instead. Although divide and conquer strategies dilute the defendant's incentives, they increase the settlement rate and reduce litigation spending. Plaintiffs can raise their joint payoff through transfer payments, voting rules, and covenants not to accept discriminatory offers.
Subject(s):
Law
Item views:
260
Metadata:
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