Monday, October 15, 2018 - 12:00pm - 1:00pm
Simon Center 125
Leshui He - Bates College

An informed (potential) plaintiff can demand a payment from an uninformed (potential) defendant with the threat of a lawsuit that may not be credible. The communication takes place before the lawsuit is filed and is costless to both sides. All perfect Bayesian equilibria exhibit partial pooling—cases below a cutoff of legal
damage reach a pre-litigation settlement, while those above are filed for a suit. These equilibria offer an explanation for the distinctive behaviors of litigation PAEs who aggressively file lawsuits for settlements and portfolio PAEs who obtain licensing revenues through pre-litigation settlements. All equilibria produce similar
comparatives statics leading to testable hypotheses regarding settlement amount before and after the cases are filed, and the likelihood of a case being filed for suit.

Sponsored by: 
Department of Economics