Editorial BoardXML

Seoul Journal of Economics - Vol. 15 , No. 1
[Paper List] [Go to Volume List]

[ Article ]
Seoul Journal of Economics - Vol. 15, No. 1, pp. 55-78
Abbreviation: SJE
ISSN: 1225-0279 (Print)
Print publication date 28 Feb 2002
Received 12 Mar 2001 Revised 02 Apr 2002

The Incentive to Take Care and the Deterrence of a Nuisance Suit
Gyu Ho Wang
Associate Professor, Department of Economics, Sogang University, Shinsoo Dong 1, Mapo-Ku, Seoul, 121-742, Korea, Tel: +82-2-705-8699, Fax: +82-2-705-8180 (ghwang@sogang.ac.kr)

JEL Classification: C72, D82, K41

Abstract

This paper investigates three important issues in law and economics: the incentive to take care in the presence of nuisance suits, the incentive to bring about a nuisance suit by a plaintiff, and how to resolve a legal dispute. For this, we consider a three-stage game between a plaintiff and a defendant. We identify two types of equilibria one of which prevails, depending on the parameter values. The main results show that: generally the equilibrium level of care differs from the socially optimal care level; nuisance suits are not fully deterred; in some cases, litigation cannot be avoided because of the informational asymmetry.

Keywords: Incentive to take care, Nuisance suits, Litigation, Informational asymmetry
Acknowledgments

I would like to thank the editor and anonymous referees. Usual disclaimer applies.

References
1. Bebchuk, L. “Litigation and Settlement under Imperfect Information.” Rand Journal of Economics 15 (1984): 404-15.
2. Bebchuk, L. “Suing Solely to Extract a Settlement Offer.” Journal of Legal Studies 17 (1988): 437-50.
3. Cheung, R. “A Bargaining Model of Pretrial Negotiation.” John M. Olin Program in Law and Economics, Stanford Law School, Working Paper No. 49, 1988.
4. Katz, A. “The Effect of Frivolous Lawsuits on the Settlement of Litigation.” International Review of Law and Economics 10 (1990): 3-27.
5. Kreps D., and Wilson, R. “Sequential Equilibria.” Econometrica 50 (1982): 863-94.
6. Nalebuff, B. “Credible Pretrial Negotiation.” Rand Journal of Economics 18 (1987): 197-210.
7. P’ng, I. “Strategic Behavior in Suit, Settlement and Trial.” Bell Journal of Economics 14 (1983): 539-50.
8. P’ng, I. “Litigation Liability, and Incentives for Care.” Journal of Public Economics 34 (1987) :
9. Polinsky, A., and Rubinfeld, D. “The Deterrent Effects of Settlements and Trials.” International Review of Law and Economics 8 (1988a): 109-16.
10. Polinsky, A. “The Welfare Implications of Costly Litigation for the Level of Liability.” Journal of Legal Studies 27 (1988b): 151-164.
11. Posner, R. Economic Analysis of Law, 3rd Edtion, Boston: Little-Brown, 1986.
12. Reinganum, J., and Wilde, L. “Settlement, Litigation and the Allocation of Litigation Costs.” Rand Journal of Economics 17 (1986): 557-66.
13. Rosenberg, D., and Shavell, S. “A Model in which Suits Are Brought for Their Nuisance Value.” International Review of Law and Economics 5 (1985): 3-13.
14. Rubinstein, A. “Perfect Equilibrium in a Bargaining Model.” Econometrica 50 (1982): 97-109.
15. Rubinstein, A. “A Bargaining Model with Incomplete Information about Time Preferences.” Econometrica 53 (1985): 1151-72.
16. Salant, S. “Litigation of Settlement Demands Questioned by Bayesian Defendants.” Social Science Working Paper No. 516, California Institute of Technology, 1984.
17. Spier, K. “The Dynamic of Pretrial Negotiation.” Review of Economic Studies 59 (1992): 93-108.
18. Wang, G. “Essays on Dynamic Game Theory.” Ph. D. Thesis, Stanford University, 1991.
19. Wang, G., Kim J., and Yi., J. “Litigation and Pretrial Negotiation under Incomplete Information.” Journal of Law, Economics and Organization 10 (1994): 187-200.
 

Editorial Office, Seoul Journal of Economics, Institute of Economic Research, Seoul National University 599 Gwanangno, Gwanak-gu, Seoul 151-746, Korea
Tel: +82-2-880-5434 | Fax: +82-2-888-4454 | E-mail: sje@plaza.snu.ac.kr
Copyright (c) 2020 SJE. All rights reserved.