Bad Debt Loss Insurance in Settlement and Litigation
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Annette Kirstein
We analyze the impact of Bad Debt Loss Insurance on settlement outcomes. A success in a settlement or trial can turn into a disaster when the defendant goes bankrupt before paying the plaintiff's claim. The starting point of our paper is a simple trial and litigation model with perfect and complete information. We add the possibility of a defendant’s bankruptcy, and of buying Bad Debt Loss Insurance for both the settlement and the trial stage. We demonstrate that trial insurance and settlement insurance have different impacts on the predicted outcome of settlement negotiations. Trial insurance tends to increase the settlement result; therefore, it generates a contract rent for the insurer and the insured. Settlement insurance, however, has the opposite effect, as it decreases the settlement result.
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
Articles in the same Issue
- Article
- Sabotaging Entry: An Estimation of Damages in the Directory Enquiry Service Market
- Corruption and the Balance of Gender Power
- Corruption and Private Law Enforcement: Theory and History
- A Note on the Effects of State-Dependent Benefits on Optimal Law Enforcement
- Bad Debt Loss Insurance in Settlement and Litigation
- Settling with Multiple Litigants
Articles in the same Issue
- Article
- Sabotaging Entry: An Estimation of Damages in the Directory Enquiry Service Market
- Corruption and the Balance of Gender Power
- Corruption and Private Law Enforcement: Theory and History
- A Note on the Effects of State-Dependent Benefits on Optimal Law Enforcement
- Bad Debt Loss Insurance in Settlement and Litigation
- Settling with Multiple Litigants
