The incentive effects of settlements under joint and several liability

International Review of Law and Economics

Volumn 16, Issue 4, 1996, Pages 389-395

  Kahan, Marcel ^a  

^a NONE

Author keywords

[No Author keywords available]

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EID: 0030529042     PISSN: 01448188     EISSN: None     Source Type: Journal    
DOI: 10.1016/S0144-8188(96)00033-6     Document Type: Article

References (26)

1. 1 Lewis A. Kornhauser and Richard L. Revesz, Settlements under Joint and Several Liability, 68 New York University Law Review 427 (1993) (hereinafter Multidefendant Settlements I); Lewis A. Kornhauser and Richard L. Revesz, Multidefendant Settlements: The Impact of Joint and Several Liability, 43 Journal of Legal Studies 41 (1994) (hereinafter Multidefendant Settlements II); Lewis A. Kornhauser and Richard L. Revesz, Multidefendant Settlements under Joint and Several Liability: The Effect of Insolvency, 43 Journal of Legal Studies 517 (1994) ; Frank H. Easterbrook, William M. Landes, and Richard A. Posner, Contribution Among Antitrust Defendants; A Legal and Economic Analysis, 23 Journal of Law and Economics 331 (1980) (hereinafter Contribution Among Antitrust Defendants); A. Mitchell Polinsky and Steven Shavell, Contribution and Claim Reduction Among Antitrust Defendants: An Economic Analysis, 33 Stanford Law Review 447 (1981) (hereinafter Contribution and Claim Reduction).
2. 1 Lewis A. Kornhauser and Richard L. Revesz, Settlements under Joint and Several Liability, 68 New York University Law Review 427 (1993) (hereinafter Multidefendant Settlements I); Lewis A. Kornhauser and Richard L. Revesz, Multidefendant Settlements: The Impact of Joint and Several Liability, 43 Journal of Legal Studies 41 (1994) (hereinafter Multidefendant Settlements II); Lewis A. Kornhauser and Richard L. Revesz, Multidefendant Settlements under Joint and Several Liability: The Effect of Insolvency, 43 Journal of Legal Studies 517 (1994) ; Frank H. Easterbrook, William M. Landes, and Richard A. Posner, Contribution Among Antitrust Defendants; A Legal and Economic Analysis, 23 Journal of Law and Economics 331 (1980) (hereinafter Contribution Among Antitrust Defendants); A. Mitchell Polinsky and Steven Shavell, Contribution and Claim Reduction Among Antitrust Defendants: An Economic Analysis, 33 Stanford Law Review 447 (1981) (hereinafter Contribution and Claim Reduction).
3. 1 Lewis A. Kornhauser and Richard L. Revesz, Settlements under Joint and Several Liability, 68 New York University Law Review 427 (1993) (hereinafter Multidefendant Settlements I); Lewis A. Kornhauser and Richard L. Revesz, Multidefendant Settlements: The Impact of Joint and Several Liability, 43 Journal of Legal Studies 41 (1994) (hereinafter Multidefendant Settlements II); Lewis A. Kornhauser and Richard L. Revesz, Multidefendant Settlements under Joint and Several Liability: The Effect of Insolvency, 43 Journal of Legal Studies 517 (1994) ; Frank H. Easterbrook, William M. Landes, and Richard A. Posner, Contribution Among Antitrust Defendants; A Legal and Economic Analysis, 23 Journal of Law and Economics 331 (1980) (hereinafter Contribution Among Antitrust Defendants); A. Mitchell Polinsky and Steven Shavell, Contribution and Claim Reduction Among Antitrust Defendants: An Economic Analysis, 33 Stanford Law Review 447 (1981) (hereinafter Contribution and Claim Reduction).
4. 1 Lewis A. Kornhauser and Richard L. Revesz, Settlements under Joint and Several Liability, 68 New York University Law Review 427 (1993) (hereinafter Multidefendant Settlements I); Lewis A. Kornhauser and Richard L. Revesz, Multidefendant Settlements: The Impact of Joint and Several Liability, 43 Journal of Legal Studies 41 (1994) (hereinafter Multidefendant Settlements II); Lewis A. Kornhauser and Richard L. Revesz, Multidefendant Settlements under Joint and Several Liability: The Effect of Insolvency, 43 Journal of Legal Studies 517 (1994) ; Frank H. Easterbrook, William M. Landes, and Richard A. Posner, Contribution Among Antitrust Defendants; A Legal and Economic Analysis, 23 Journal of Law and Economics 331 (1980) (hereinafter Contribution Among Antitrust Defendants); A. Mitchell Polinsky and Steven Shavell, Contribution and Claim Reduction Among Antitrust Defendants: An Economic Analysis, 33 Stanford Law Review 447 (1981) (hereinafter Contribution and Claim Reduction).
5. 1 Lewis A. Kornhauser and Richard L. Revesz, Settlements under Joint and Several Liability, 68 New York University Law Review 427 (1993) (hereinafter Multidefendant Settlements I); Lewis A. Kornhauser and Richard L. Revesz, Multidefendant Settlements: The Impact of Joint and Several Liability, 43 Journal of Legal Studies 41 (1994) (hereinafter Multidefendant Settlements II); Lewis A. Kornhauser and Richard L. Revesz, Multidefendant Settlements under Joint and Several Liability: The Effect of Insolvency, 43 Journal of Legal Studies 517 (1994) ; Frank H. Easterbrook, William M. Landes, and Richard A. Posner, Contribution Among Antitrust Defendants; A Legal and Economic Analysis, 23 Journal of Law and Economics 331 (1980) (hereinafter Contribution Among Antitrust Defendants); A. Mitchell Polinsky and Steven Shavell, Contribution and Claim Reduction Among Antitrust Defendants: An Economic Analysis, 33 Stanford Law Review 447 (1981) (hereinafter Contribution and Claim Reduction).
6. 2 See Kathryn E. Spier, A Note on Joint and Several Liability: Insolvency, Settlement, and Incentives, 43 Journal of Legal Studies 559 (1994); Lewis A. Kornhauser and Richard L. Revesz, Sharing Damages Among Multiple Tortfeasors, 98 Yale Law Journal 831 (1989); Easterbrook et al. (1980), Contribution Among Antitrust Defendants, supra note 1; and Polinsky and Shavell (1981), Contribution and Claim Reduction, supra note 1. Except for Spier (1994), these articles do not analyze the specific deterrence effects created by the impact on settlement.
7. 2 See Kathryn E. Spier, A Note on Joint and Several Liability: Insolvency, Settlement, and Incentives, 43 Journal of Legal Studies 559 (1994); Lewis A. Kornhauser and Richard L. Revesz, Sharing Damages Among Multiple Tortfeasors, 98 Yale Law Journal 831 (1989); Easterbrook et al. (1980), Contribution Among Antitrust Defendants, supra note 1; and Polinsky and Shavell (1981), Contribution and Claim Reduction, supra note 1. Except for Spier (1994), these articles do not analyze the specific deterrence effects created by the impact on settlement.
8. 2 See Kathryn E. Spier, A Note on Joint and Several Liability: Insolvency, Settlement, and Incentives, 43 Journal of Legal Studies 559 (1994); Lewis A. Kornhauser and Richard L. Revesz, Sharing Damages Among Multiple Tortfeasors, 98 Yale Law Journal 831 (1989); Easterbrook et al. (1980), Contribution Among Antitrust Defendants, supra note 1; and Polinsky and Shavell (1981), Contribution and Claim Reduction, supra note 1. Except for Spier (1994), these articles do not analyze the specific deterrence effects created by the impact on settlement.
9. 2 See Kathryn E. Spier, A Note on Joint and Several Liability: Insolvency, Settlement, and Incentives, 43 Journal of Legal Studies 559 (1994); Lewis A. Kornhauser and Richard L. Revesz, Sharing Damages Among Multiple Tortfeasors, 98 Yale Law Journal 831 (1989); Easterbrook et al. (1980), Contribution Among Antitrust Defendants, supra note 1; and Polinsky and Shavell (1981), Contribution and Claim Reduction, supra note 1. Except for Spier (1994), these articles do not analyze the specific deterrence effects created by the impact on settlement.
10. 3 See, e.g., Kornhauser and Revesz (1993), Multidefendant Settlements I, supra note 1; Kornhauser and Revesz (1994), Multidefendant Settlements II, supra note 1; Easterbrook et al. (1980), Contributions Among Antitrust Defendants, supra note 1; and Polinsky and Shavell (1981), Contribution and Claim Reduction, supra note 1.
11. 3 See, e.g., Kornhauser and Revesz (1993), Multidefendant Settlements I, supra note 1; Kornhauser and Revesz (1994), Multidefendant Settlements II, supra note 1; Easterbrook et al. (1980), Contributions Among Antitrust Defendants, supra note 1; and Polinsky and Shavell (1981), Contribution and Claim Reduction, supra note 1.
12. 3 See, e.g., Kornhauser and Revesz (1993), Multidefendant Settlements I, supra note 1; Kornhauser and Revesz (1994), Multidefendant Settlements II, supra note 1; Easterbrook et al. (1980), Contributions Among Antitrust Defendants, supra note 1; and Polinsky and Shavell (1981), Contribution and Claim Reduction, supra note 1.
13. 3 See, e.g., Kornhauser and Revesz (1993), Multidefendant Settlements I, supra note 1; Kornhauser and Revesz (1994), Multidefendant Settlements II, supra note 1; Easterbrook et al. (1980), Contributions Among Antitrust Defendants, supra note 1; and Polinsky and Shavell (1981), Contribution and Claim Reduction, supra note 1.
14. 4 The only prior discussion of the implications of the settlement effect on primary behavior has implicitly assumed that p is independent of x. See Spier ( 1994), Insolvency, Settlement, and Incentives, supra note 2, pp. 561-563.
15. 5 See Kornhauser and Revesz (1994), Multidefendant Settlements II, supra note 1, at 45.
16. 6 For a justification of this assumption, see Easterbrook et al. (1980), Contribution Among Antitrust Defendants, supra note 1, p. 360 (agreements to cooperate are not stable), and Kornhauser and Revesz (1994), Multidefendant Settlements II, p. 46 (empirical study suggests that agreements to cooperate are not common). To the extent that parties can cooperate costlessly, the settlement effects described in the prior literature disappear.
17. 7 See Kornhauser and Revesz (1993), Multidefendant Settlements I, supra note 1, p. 456, note 113; Kornhauser and Revesz (1994), Multidefendant Settlements II, supra note 1, pp. 62, 67-71; Spier (1994), Insolvency, Settlement, and Incentives, supra note 2, at 562; Polinsky and Shavell (1981), Contribution and Claim Reduction, supra note 1, p. 470; Easterbrook et al. (1980), Contribution Among Antitrust Defendants, supra note 1, pp. 356-360. Both defendants rejecting the settlement offer would also constitute a Nash equilibrium. See, e.g., Kornhauser and Revesz (1994), Multidefendant Settlements II, p. 64.
18. 7 See Kornhauser and Revesz (1993), Multidefendant Settlements I, supra note 1, p. 456, note 113; Kornhauser and Revesz (1994), Multidefendant Settlements II, supra note 1, pp. 62, 67-71; Spier (1994), Insolvency, Settlement, and Incentives, supra note 2, at 562; Polinsky and Shavell (1981), Contribution and Claim Reduction, supra note 1, p. 470; Easterbrook et al. (1980), Contribution Among Antitrust Defendants, supra note 1, pp. 356-360. Both defendants rejecting the settlement offer would also constitute a Nash equilibrium. See, e.g., Kornhauser and Revesz (1994), Multidefendant Settlements II, p. 64.
19. 7 See Kornhauser and Revesz (1993), Multidefendant Settlements I, supra note 1, p. 456, note 113; Kornhauser and Revesz (1994), Multidefendant Settlements II, supra note 1, pp. 62, 67-71; Spier (1994), Insolvency, Settlement, and Incentives, supra note 2, at 562; Polinsky and Shavell (1981), Contribution and Claim Reduction, supra note 1, p. 470; Easterbrook et al. (1980), Contribution Among Antitrust Defendants, supra note 1, pp. 356-360. Both defendants rejecting the settlement offer would also constitute a Nash equilibrium. See, e.g., Kornhauser and Revesz (1994), Multidefendant Settlements II, p. 64.
20. 7 See Kornhauser and Revesz (1993), Multidefendant Settlements I, supra note 1, p. 456, note 113; Kornhauser and Revesz (1994), Multidefendant Settlements II, supra note 1, pp. 62, 67-71; Spier (1994), Insolvency, Settlement, and Incentives, supra note 2, at 562; Polinsky and Shavell (1981), Contribution and Claim Reduction, supra note 1, p. 470; Easterbrook et al. (1980), Contribution Among Antitrust Defendants, supra note 1, pp. 356-360. Both defendants rejecting the settlement offer would also constitute a Nash equilibrium. See, e.g., Kornhauser and Revesz (1994), Multidefendant Settlements II, p. 64.
21. 7 See Kornhauser and Revesz (1993), Multidefendant Settlements I, supra note 1, p. 456, note 113; Kornhauser and Revesz (1994), Multidefendant Settlements II, supra note 1, pp. 62, 67-71; Spier (1994), Insolvency, Settlement, and Incentives, supra note 2, at 562; Polinsky and Shavell (1981), Contribution and Claim Reduction, supra note 1, p. 470; Easterbrook et al. (1980), Contribution Among Antitrust Defendants, supra note 1, pp. 356-360. Both defendants rejecting the settlement offer would also constitute a Nash equilibrium. See, e.g., Kornhauser and Revesz (1994), Multidefendant Settlements II, p. 64.
22. 7 See Kornhauser and Revesz (1993), Multidefendant Settlements I, supra note 1, p. 456, note 113; Kornhauser and Revesz (1994), Multidefendant Settlements II, supra note 1, pp. 62, 67-71; Spier (1994), Insolvency, Settlement, and Incentives, supra note 2, at 562; Polinsky and Shavell (1981), Contribution and Claim Reduction, supra note 1, p. 470; Easterbrook et al. (1980), Contribution Among Antitrust Defendants, supra note 1, pp. 356-360. Both defendants rejecting the settlement offer would also constitute a Nash equilibrium. See, e.g., Kornhauser and Revesz (1994), Multidefendant Settlements II, p. 64.
23. 8 See Kornhauser and Revesz (1994), Multidefendant Settlements II, supra note 1 p. 62; see also Polinsky and Shavell, Contribution and Claim Reduction, supra note 1, pp. 469-470 (deriving the same equilibrium for simultaneous offers by defendants).
24. 8 See Kornhauser and Revesz (1994), Multidefendant Settlements II, supra note 1 p. 62; see also Polinsky and Shavell, Contribution and Claim Reduction, supra note 1, pp. 469-470 (deriving the same equilibrium for simultaneous offers by defendants).
25. 9 See also Spier ( 1994), Insolvency, Settlement, and Incentives, supra note 2, p. 562. As Spier notes, the ratio between the joint/several damages amount and the base damages amount equals n/[1 + p(n - 1)] and thus increases (approaches n) as p approaches zero. As p approaches zero, however, the base damage amount itself declines. Thus, Spier's conclusion that as p declines, the discrepancy between the joint/several damages amount and the merits of the case (as expressed by the base damages amount) increases applies only to the ratio between these two values and not the discrepancy in absolute terms.
26. 10 In a third case, p may depend on the level of care but may not take on the full range of values from 0 to 1. For example, there may be uncertainty both over the level of due care and over whether the statute of limitations has expired. In that case, even if the defendants exercised a level of care below the range of possible degrees of due care, p would be less than 1. In such a case, joint and several liability can have different kinds of effects. Similar to the first case, it can increase incentives to exercise care for low levels of p and decrease incentives for high levels of p. Similar to the second case, it can increase incentives for any p. Finally, it can increase incentives to exercise care for low levels of p, decrease incentives for higher levels of p, and then again increase incentives to exercise care.