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on Contract Theory and Applications |
| By: | Andrew Daughety (Department of Economics and Law School, Vanderbilt University); Jennifer Reinganum (Department of Economics and Law School, Vanderbilt University) |
| Abstract: | In this paper we use a signaling model to analyze the effect of (endogenously-determined) third-party non-recourse loans to plaintiffs on settlement bargaining when a plaintiff has private information about the value of her suit. We show that an optimal loan (i.e., one that maximizes the joint expected payoff to the litigation funder and the plaintiff) induces full settlement. Furthermore, in contrast with the more standard (no-loan) settlement bargaining models, there is no revelation of information created by the bargaining process: all plaintiff types (where the plaintiff's type is her level of harm) make the same demand and, since no types go to trial, private information is not revealed. Implementation of the loan may entail a very high interest rate; we show that a high (enough) rate is necessary if one wants to obtain full settlement for all types of plaintiffs even when there is asymmetric information. We also find that plaintiffs' lawyers benefit from such financing, as it reduces their costs by eliminating the need to take the case to trial due to bargaining breakdown. We further show that regulation of such loans, in the form of caps on the interest charged, may result in settlement failure or elimination of the litigation-funding industry itself. |
| Keywords: | settlement bargaining, litigation funding, non-recourse loan, signaling |
| JEL: | K4 D8 |
| Date: | 2013–02–13 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:vuecon-sub-13-00001&r=cta |
| By: | Elena Manzoni; Stefan P. Penczynski |
| Abstract: | This paper models a purely informational mechanism behind the incumbency advantage. In a two-period electoral campaign with two policy issues, a specialized incumbent and an unspecialized, but possibly more competent challenger compete for election by voters who are heterogeneously informed about the state of the world. Due to the asymmetries in government responsibility between candidates, the incumbent's statement may convey information on the relevance of the issues to voters. In equilibrium, the incumbent sometimes strategically releases his statement early and thus signals the importance of his signature issue to the voters. We find that, since the incumbent's positioning on the issue reveals private information which the challenger can use in later statements, the incumbent's incentives to distort the campaign are decreasing in the quality of the incumbent, as previously documented by the empirical literature. However, we show that this implies a non-monotonicity in the distortions that arise in equilibrium. |
| Keywords: | Incumbency advantage, electoral competition, information revelation, agenda |
| JEL: | D72 D82 D60 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:229&r=cta |
| By: | Bobtcheff, Catherine (Toulouse School of Economics (CNRS, LERNA)); Bolte, Jérôme (Toulouse School of Economics (GREMAQ)); Mariotti, Thomas (Toulouse School of Economics (CNRS, GREMAQ, IDEI)) |
| Abstract: | We model academic competition as a game in which researchers ¯ght for priority. Researchers privately experience breakthroughs and decide how long to let their ideas mature before making them public, thereby establishing priority. In a two-researcher, symmetric environment, the resulting preemption game has a unique equilibrium. We study how the shape of the breakthrough distribution affects equilibrium maturation delays. Making researchers better at discovering new ideas or at developing them has contrasted effects on the quality of research outputs. Finally, when researchers have different innovative abilities, speed of discovery and maturation of ideas are positively correlated in equilibrium. |
| Keywords: | Academic Competition, Preemption Games, Private Information. |
| JEL: | C73 D82 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:26783&r=cta |
| By: | Ari Van Assche; Galina A. Schwartz |
| Abstract: | This paper examines the role of contracting institutions on a multinational firm's optimal ownership strategy. We develop a model in which both a multinational firm and its local joint venture partner can ex post engage in costly rent-seeking actions to increase their ex ante agreed upon revenue share. We show that the host country's level of contract enforcement and level of judicial favoritism affect the parties' incentives to contribute to the international joint venture. The model allows us to identify testable hypotheses relating these institutional features with the performance and optimal ownership structure of international joint ventures. <P> |
| Keywords: | international joint venture, ownership structure, institutions, contract enforcement, judicial favoritism, |
| JEL: | F23 L14 L24 |
| Date: | 2013–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2013s-04&r=cta |