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.

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