Samuel Ferey

Litigations in Labor Law: Intuitive vs. Reflective Judgements?

A growing topic in Law and Economics is the organization of the judicial system. Models relating to the outcome of trials attempt to describe and explain the choice of the parties between litigation and settlement. The first analysis of this nature goes back to 1972 with the publication of Landes’ article entitled »An Economic Analysis of the Courts« (Landes, 1971). Further studies in this area have insisted on the strategic parties’ behavior (Cooter and Rubinfeld, 1989). Initial models of legal conflicts developed in the seventies (Landes 1971; Gould 1973) did not really propose to describe negotiations which may have occurred before the judge’s decision. The aim of their authors was rather to identify the incentives of the parties as rational agents to solve a dispute and explain why negotiations fail in certain cases, thus requiring the intervention of a judge. The answer to this question comes from an excess of optimism on behalf of the parties concerning their chances of winning the trial, i.e. a misperception of the surplus emanating from negotiation. Even though these models do give a reasonably convincing explanation of how disputes are settled out of the court, they remain very vague as to the way in which those concerned form their expectations as to the outcome of the trial and as to why they are over-optimistic. This is probably why, most of authors prefer to insist on the strategic nature of negotiation and choose to represent litigation as games under imperfect information. It is no longer necessary to suppose that what the parties believe is systematically biased in order to explain the outcome of conflicts through legal proceedings. The existence of informational asymmetries is indeed at the root of differing beliefs as to the outcome of a trial and final decisions may be the result of optimal negotiation strategies of the two parties. In the context of a litigation between a plaintiff and a defendant, game theory enables to give a precise idea on the outcome of strategic interaction, rendered even more complex as one of the actors may hold personal information or present characteristics the other party cannot observe. By looking at negotiation process, the suggested approach already goes one step further than those of Landes and Gould. Henceforth, the beliefs of the parties are consistent in equilibrium in the sense that they commit no systematic errors (subjective probability matches objective frequency) but the likelihood of the negotiation failing is still not zero. Compared to the optimistic models, strategic ones generally offer a richer description of legal process whether or not there is a settlement between the parties. However, there is still a problem with strategic models because they