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.