Asymmetric Information in Litigation
Information asymmetries in litigation refer to situations in which one party is privately informed concerning an issue that is relevant to the outcome of the legal process. In particular, information asymmetries are widely conceived to be an obstacle to settlements. They are prevalent in the legal discourse and have been extensively analyzed in the last decades through game-theoretical models. This entry briefly discusses the theoretical models of asymmetric information in litigation, their underlying assumptions, real-world applicability, and possible avenues to bridge informational gaps.
Litigation is costly. We would therefore expect the parties to seek a contractual solution that saves their joint litigation costs – a settlement. Most of the filed cases indeed settle, but some are not (Spier 2007, p. 268). The literature has offered a variety of reasons to explain settlement failures, among which asymmetric information is considered a major obstacle to...
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