Pretrial Bargaining and the Design of Fee-Shifting Rules
Volume: Volume 25, No. 2
Issue: Summer 1994
Pages: pp. 197-214
Authors: Kathryn E. Spier
Title: Pretrial Bargaining and the Design of Fee-Shifting Rules
Abstract: Legal rules for allocating the private costs of civil litigation, or "fee-shifting" rules, provide powerful incentives for settlement. Within the context of a direct-revelation mechanism, the fee-shifting rule that generates the highest probability of settlement bases the allocation of costs upon the proximity of the court's award to the pretrial announcements. This mechanism resembles Rule 68 of the Federal Rules of Civil Procedure and other offer-based rules. In a simple extensive-form game, if the litigants have asymmetric information about the level of damages (probability of prevailing), then Rule 68 increases (decreases) the settlement rate.
JEL Classification:
Litigation Process (K410)
Conflict; Conflict Resolution (D740)
Economics of Law and Crime (9160)
Economics of War, Defense, and Disarmament (1140)