Who Should Be Worried About Asymmetric Information in Litigation?

نویسنده

  • EVAN OSBORNE
چکیده

What is the appropriate informational structure when modeling the lawsuit? In numerous papers stretching back almost 30 years litigation has been portrayed as a game involving incomplete, sometimes asymmetric information. That information is incomplete is beyond question. Clients, in conjunction with their attorneys, must make decisions on filing and settlement in the presence of uncertainty about how courts will interpret evidence, litigants’ settlement reservation values, and a host of other factors. However, the direction of informational asymmetry, if any, is a subject of disagreement in the theoretical literature. Various models have depicted the lawsuit as exercises in which plaintiffs [Farmer and Pecorino (1994); Reinganum and Wilde (1986); Shavell (1989)] or defendants [Bebchuk (1984); Nalebuff (1987); Png (1983, 1987); Spier (1992)] uniquely know key information such as the level of fault or damage. In other work both sides either each possess private information [Daughety and Reinganum (1994); Hay (1995); Schweizer (1989)] or contend with symmetric incomplete information [Priest and Klein (1984)]. Often these assumptions have significant implications for the predictions of these models. Given the large range of informational stipulations in the theory, it is surprising that so little empirical analysis of the informational structure of the lawsuit exists. This paper will examine that structure by testing litigants’ ability to predict court decisions. The paper has three findings. The first is that asymmetric information (AI) does exist in cases that proceed to a decision. This finding is in contrast to recent work by Waldfogel (1998), who finds that theories based on random optimism (RO), as in the Priest/Klein model and its descendants, explain trial data better than AI. The second finding is that this asymmetry is substantially in favor of defendants. The third is that the asymmetry is largely associated with the use of contingent fees by plaintiffs. The paper proceeds as follows: Section 2 presents evidence for AI, Section 3 investigates the direction of the asymmetry, and Section 4 examines the relation between attorneys’ fees and information.

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تاریخ انتشار 1999