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PS9 - weeks to 2 weeks How will this affect the probability...

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Legal Studies 145 - Law and Economics I P ROBLEM S ET #9 Suppose initially that it costs plaintiff $1,000 to file a lawsuit, that it costs plaintiff and defendant $2,000 each to pursue a filed case up to the eve of trial, and it costs a further $3,000 each to try the case. Suppose also that both plaintiff and defendant perceive plaintiff’s probability of success at trial to be .70, and that both parties agree that any damages to be awarded at trial will be $10,000. Costs are allocated according to the American rule and the parties are assumed to be risk neutral. 1. Will the plaintiff file the suit? Will the case settle or go to trial? Discuss. 2. Suppose that plaintiff obtains information from defendant before trial that increases his/her subjective probability of success to .90. How will this affect plaintiff's expected value of going on with the lawsuit (since the cost of filing the suit is a sunk cost)? How will this affect the probability of trial? 3. Suppose that the judge announces that the length of any trial will be reduced from 8
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Unformatted text preview: weeks to 2 weeks. How will this affect the probability of trial? Plaintiff's expected reward? 4. Suppose that just prior to trial, Congress passes a law that allocates costs under the British rule rather than the American rule. Will this plaintiff be pleased or not? Explain. 5. Suppose that plaintiff's perceived probability of success at trial is 0, while defendant's perception does not change. If the plaintiff knows this in advance, will the plaintiff still file the lawsuit? If filed, will the case be settled or go to trial, explain? 6. Suppose that both the plaintiff and defendant perceive plaintiff's probability of success at trial to be 0, but both parties are aware that it will cost the defendant $3,000 in legal expenses to do the paper work to convince the judge to throw the case out of court. Will the plaintiff file a law suit? Will the case be settled or go to trial?...
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