The Precedent-Setting Value of Litigation and the Selection of Cases for Trial
Posted: 3 Oct 1997
Date Written: May 1997
This paper considers the importance of precedent creation in modeling parties' decisions re settlement or litigation. The theory suggests that parties receiving material value from a precedent (e.g., a manufacturer litigating a product liability design defect claim) will press favorable cases to decision creating a favorable precedent, irrespective of settlement value. Unfavorable cases will be settled, even at a premium. The theory is empirically tested by analyzing defense success rates by type of tort action. Precedent-setting value proves a major determinant of such rates, even after controlling for informational asymmetry and high damage awards. The theory is further supported by an analysis of trial rates and defense success rates by individual judge. The implication of the use of precedent- setting value in case selection is to further skew precedents in favor of repeat players.
JEL Classification: K41
Suggested Citation: Suggested Citation