Skip to main content
Article
Exploiting plaintiffs through settlement: Divide and conquer
Journal of Institutional and Theoretical Economics (2008)
  • Yeon-Koo Che, Columbia University
  • Kathryn E. Spier
Abstract
This paper considers settlement negotiations between a single defendant and N plaintiffs when there are fixed costs of litigation. When making simultaneous take-it-or-leave-it offers to the plaintiffs, the defendant adopts a divide and conquer strategy. Plaintiffs settle their claims for less than they are jointly worth. The problem is worse when N is larger, the offers are sequential, and the plaintiffs make offers instead. Although divide and conquer strategies dilute the defendant’s incentives, they increase the settlement rate and reduce litigation spending. Plaintiffs can raise their joint payoff through transfer payments, voting rules, and covenants not to accept discriminatory offers.(JEL: K4, C7, D8)
Keywords
  • litigation,
  • settlement,
  • class actions,
  • bargaining,
  • divide and conquer,
  • contracting with externalities
Disciplines
Publication Date
2008
Publisher Statement
Discussion Paper 0607-18
Citation Information
Yeon-Koo Che and Kathryn E. Spier. "Exploiting plaintiffs through settlement: Divide and conquer" Journal of Institutional and Theoretical Economics (2008)
Available at: http://works.bepress.com/yeonkoo/5/