TY - JOUR
T1 - Against compromise
T2 - A mechanism design approach
AU - Klement, Alon
AU - Neeman, Zvika
N1 - Funding Information:
doi:10.1093/jleo/ewi020 Advance Access publication August 24, 2005 © The Author 2005. Published by Oxford University Press. All rights reserved. For Permissions, please email: [email protected] We thank Lucian Bebchuk, Eric Talley, and seminar participants at Boston University, Harvard, the Hebrew University of Jerusalem, the London School of Economics, Tel Aviv University, and the CLEO conference on ‘‘mechanism design and the law’’ at the University of Southern California for helpful comments. Financial support from the Falk Institute for Economic Research is gratefully acknowledged.
PY - 2005/10
Y1 - 2005/10
N2 - A risk-neutral plaintiff sues a risk-neutral defendant for damages that are normalized to one. The defendant knows whether she is liable or not, but the plaintiff does not. We ask what are the settlement procedures and fee-shifting rules (which, together, we call a mechanism) that minimize the rate of litigation subject to maintaining deterrence. Two main results are presented. The first is a characterization of an upper bound on the rate of settlement that is consistent with maintaining deterrence. This upper bound is shown to be independent of the litigants' litigation cost. It is shown that any mechanism that attains this bound must employ the English fee-shifting rule (according to which all litigation costs are shifted to the loser in the trial). The second result describes a simple practicable mechanism that attains this upper bound. We discuss our results in the context of recent legal reforms in the United States and United Kingdom.
AB - A risk-neutral plaintiff sues a risk-neutral defendant for damages that are normalized to one. The defendant knows whether she is liable or not, but the plaintiff does not. We ask what are the settlement procedures and fee-shifting rules (which, together, we call a mechanism) that minimize the rate of litigation subject to maintaining deterrence. Two main results are presented. The first is a characterization of an upper bound on the rate of settlement that is consistent with maintaining deterrence. This upper bound is shown to be independent of the litigants' litigation cost. It is shown that any mechanism that attains this bound must employ the English fee-shifting rule (according to which all litigation costs are shifted to the loser in the trial). The second result describes a simple practicable mechanism that attains this upper bound. We discuss our results in the context of recent legal reforms in the United States and United Kingdom.
UR - http://www.scopus.com/inward/record.url?scp=25144473116&partnerID=8YFLogxK
U2 - 10.1093/jleo/ewi020
DO - 10.1093/jleo/ewi020
M3 - ???researchoutput.researchoutputtypes.contributiontojournal.article???
AN - SCOPUS:25144473116
SN - 8756-6222
VL - 21
SP - 285
EP - 314
JO - Journal of Law, Economics, and Organization
JF - Journal of Law, Economics, and Organization
IS - 2
ER -