Title: Tailored Suits: Contracting on Litigation (joint with J.J. Prescott). See below for the abstract. Lunch will be provided from 11:45 on.
A plaintiff and defendant are negotiating in the shadow of pending litigation. When the divergence between their subjective beliefs is sufficiently large, and they are not too risk averse, the litigants will forego settlement in favor of a contract that tailors the damage payments to suit their beliefs and preferences. With CARA expected utility, the optimal contract is increasing in the likelihood ratio of their subjective beliefs. When the litigants' beliefs are normally distributed with divergent means, the optimal contract is linear in the court's award and is flatter when the parties are more risk averse, when beliefs are more aligned, when the trial outcome variance is larger, and when litigation costs are endogenous. Implications for real world litigation practice include the use of high-low settlement agreements and partial settlement in multi-issue litigation. Finally, the role of third parties, including litigation funders and insurance companies, is analyzed and discussed.
*Joint with J.J. Prescott
The ACLE Seminars are held once a month on Monday afternoons from 12:00 - 13:15 at the Amsterdam Business School (University of Amsterdam).
This series focuses primarily on subjects related to economics.
11:45 - 12:00: doors open and lunch;
12:00 - 13:15: seminar.
Please note that the seminar room is subject to change every month. The room will be specified in the link below.