3 . Sufficient Condition for Litigation ( No Bargaining Range ): Minimum Plaintiff will accept > Defendant ’ s Maximum Offer ( Pp - Pd ) V > Cd + Cp Hence now we come to conclusion that if the estimate of the probability of winning is same for both the parties then although the parties won ’ t go for litigation but rather would end up in settlement
NEGATIVE VALUE THEORY The threat to file a lawsuit is not reasonable if both the parties have the same level of information . If the defendant do not know whether the plaintiff would or would not be willing to go for trial , it may be rational to settle with the plaintiff because of the possibility of a lawsuit .
If the defendant know that there are two types of plaintiff , one with positive value and the other with negative value suits , it will lower its settlement offers , which will increase the number of lawsuits . You can also have negative value suits if the defendant will have to spend money if he does not want to lose , it might be reasonable to settle in order to economize on defines costs .
Negative value suit may be relevant if the only reason they are negative is because of the litigation costs : you know you will win , but too expensive regarding the litigation costs , hence you are not doing anything which is always efficient from a social point of view .
CRIME AND DETERRENCE The anticipation of conviction and punishment reduces the loss from offences , thus increases social welfare by discouraging offenders . If social welfare is measured by income and if ‘ effectiveness ’ is defined as a ratio of the maximum feasible increase in income to the increase if all offences causing net damages were abolished by fiat . The maximum feasible increase is achieved by choosing optimal values of the probability of apprehension and conviction , p , and the size of punishments , f .
Effectiveness so defined can vary between zero and unity and depends essentially on two behavioural relations : the costs of apprehension and conviction and the elasticity of response of offences to changes in p and f . The smaller these costs or the greater these elasticity , the smaller the cost of achieving any given reduction in offences and thus the greater the effectiveness . If compensation was stressed , the main purpose of legal proceedings would be levy fines equal to he harm inflicted on society by constraints of trade .